Markets regulator Sebi relaxes eligibility criteria for SR shares

Markets regulator Sebi has relaxed the framework governing the issue of shares with superior voting rights (SR shares), a move that will help new-age technology companies. The Securities and Exchange Board of India (Sebi) said promoters who have a net worth of over Rs 1,000 crore can have superior voting rights in their companies, raising it from the current Rs 500 crore.

"The net worth of the SR shareholder, as determined by a registered valuer, shall not be more than Rs 1,000 crore," Sebi said in a notification on Tuesday.

Explaining further, the regulator said while determining the individual net worth of the SR shareholder, his investment/ shareholding in other listed companies shall be considered, but not that of his shareholding in the issuer company.

In addition, the minimum gap between issuance of SR shares and filing of Red Herring Prospectus has been reduced to three months from the existing requirement of six months.

Market participants are of the view that certain aspects of the current framework on SR shares are onerous, which delays such issuer companies from raising funds from capital markets.

The regulator had introduced a superior voting rights framework in 2019 specifically for issuer companies intensive in the use of technology.

The framework allows the issuance of SR shares to promoters/ founders holding an executive position in the company desirous of listing on the mainboard.

It also has checks and balances such as coattail provisions i.e. matters in which SR shares will have the same rights as that of ordinary shares and sunset clause i.e. time period until which such an SR shareholder will enjoy superior voting rights.

To give effect to this, Sebi has amended ICDR (Issue of Capital and Disclosure Requirements) rules. This comes after the board of Sebi approved an amendment in this regard in late September.