Minimum shareholding norm not for non-controlling entity: Sebi

A non-promoter entity can't be asked to reduce stake in a listed company if its purchase of shares, without acquiring control of the firm, leads to non-compliance with the minimum public shareholding norms.
The views have been expressed by market regulator Sebi in an 'interpretive letter' issued to a company, R Systems International, which had sought an 'informal guidance' on this matter in relation to purchase of a significant stake by a non-promoter entity.
Sebi noted that the non-promoter entity belonged to the category of public shareholders since "the prime objective behind the acquisition is the investment value in the equity shares of the target company (R Systems) and not substantial holding of shares/voting rights/control or management of the target company.

"Therefore until and unless the acquirer actually acquires control of the target company, the acquirer would be considered as public."
As per the company submissions, Bhvook Tripathi, a non-promoter entity, had acquired shares of the firm that increased his stake in the company to over 30 per cent and resulted in fall of public shareholding below the 25 per cent prescribed limit.
R Systems had sought Sebi's views on whether the share purchase by Tripathi will be treated as part of the non-public holding of the company and if so will the acquirer be required to reduce its stake in the company to ensure compliance with the minimum public shareholding norms.

As per Sebi rules, an entity is obligated to bring down its shareholding to the level specified for maximum permissible non-public shareholding (75 per cent) within a stipulated time.

However, in the case of R Systems, Sebi noted that Tripathi belonged to the category of public shareholder as he was neither a promoter nor a person acting in concert with the promoters and had bought shares for investment purposes and not for acquiring control in the company.
Moreover, Sebi said that going by the shareholding pattern of R Systems for quarter ending September 2013, Tripathi was listed as a public shareholder.

"The expression acquirer has been defined as any person who directly or indirectly acquires shares or voting rights in or control over a target company either by himself, or through or with any person acting in concert with him.
"As per the definition the acquirer means any person which is includes both promoter and public," Sebi said.