The Securities and Exchange Board of India has proposed to impose restrictions on the practice of extending corporate guarantees at listed companies.
Under the proposed norms, a company will be allowed to provide guarantees only if it's in its "economic interest". Also, before extending any such loan or any guarantee, the listed firm will have to obtain prior approval from the shareholders on a 'majority of minority' basis.
The changes are aimed at protecting the interest of minority investors.
"Instances have come to the notice of Sebi where listed companies have extended corporate guarantees on behalf of their promoters or promoter-related entities. It is also observed that, at times, promoter entities have sourced funds through various complex structures and structured obligations, for which the listed companies have provided guarantees, detrimental to the interest of their shareholders,” Sebi said in a discussion paper.
Sebi has invited public comments on the proposals by the end of this month. Following the market consultation, the market regulator will introduce the changes.