Sebi rejects Rs 260-cr preferential warrant issue by Strides Arcolab

Mutual transfer by promoters prior to issue disqualifies them for special treatment, says regulator

The Securities and Exchange Board of India (Sebi) has rejected a proposal by pharma company Strides Arcolab to issue warrants worth Rs 260 crore on a preferential basis to its promoters.

The capital markets regulator said the rules governing preferential allotments would apply for transfers within the promoter group. “If there is any inter se (meaning, between themselves) transfer among the promoter group entities in the preceding six months, then all the persons/entities forming part of ‘promoter(s) and promoter group’ shall become ineligible for allotment of specified securities on a preferential basis,” said Sebi.

Strides had sought Sebi’s guidance on whether transfer of shares by the promoter group between itself would be considered a ‘sale’ under the Issue of Capital and Disclosure Requirements (ICDR) regulations. The ICDR norms don’t mandate an issuer to make preferential issue of shares or specified securities to any person who has sold equity shares of the issuer during the six months preceding the date of allotment.
 

REGULATOR’S PERSPECTIVE

• Strides' promoter group conducts an inter-se transfer of 12.6 mn shares in Oct
• Board approves warrant issue of Rs 260 cr to promoter group in Nov
• Company seeks Sebi guidance on whether promoters are eligible for the warrant issue
• Regulator says sale of shares also includes inter-se transfers 
• As per rules, sale of shares prior to preferential allotment results in disqualification
• Sebi says Strides' promoters ineligible for the warrant issue

In October 2011, Agnus Holdings, Chayadeep Venture and Pronomz Ventures, promoter group entities of the Bangalore-based company, had transferred 12.6 million shares within themselves through three different transactions. This transfer didn’t alter the promoter holding in the company.

The company’s board in November 2011 approved issue of 6.2 million convertible warrants to the promoter group at Rs 425 per warrant, amounting to a little over Rs 260 crore. Strides had made an informal request as to whether the promoter group would be eligible for the issue of convertible warrants. Any Sebi-registered market intermediary or listed company can seek interpretation or clarification on any provisions of the Sebi Acts or guidelines, under its informal guidance scheme.

The regulator said, “The regulations do not differentiate between inter se transfers made to entities within the promoter group and sales made to others. Hence, the term ‘any person who has sold any equity shares of the issuer’ shall also include any person who has made inter se transfers within the promoter group.