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Sebi paper proposes dilution of promoter reclassification norms

Sebi said the reclassification on shareholding should be amended so that the promoter and related persons seeking re-classification should not together hold 15 per cent or more of the total voting rights in the listed entity.

By: ENS Economic Bureau | New Delhi | November 24, 2020 3:19:55 am
The minimum threshold requirement is 10 per cent now.

The Securities and Exchange Board of India (Sebi) has proposed to change the minimum threshold for voting rights for reclassification of a promoter as a public shareholder and suggested that all promoter entities should disclose the shareholding.

In a consultation paper, the regulator said the reclassification on shareholding should be amended so that the promoter and related persons seeking re-classification should not together hold 15 per cent or more of the total voting rights in the listed entity. As of now, the minimum threshold requirement is 10 per cent.

The regulator move follows feedback from market participants to review the current threshold of 10 per cent so that the persons who may have been promoters but are no longer in day-to-day control, having shareholding of less than 15 per cent may “opt-out” from being classified as promoters, without having to reduce their shareholding. Promoters have sought re-classification but have found it difficult under the current regulatory regime.

The Sebi paper said relaxation from existing requirements on a case-to-case basis has been given by Sebi and the existing provisions should be revisited to minimise the number of exemptions provided on a case-to-case basis.

This is subject to the condition that such promoters seeking re-classification should not remain in control of the listed entity, it said. Further, exemption from the procedure for re-classification should be granted to existing promoters in cases where such re-classification is pursuant to an open offer.

It further suggested that exemption should be granted in cases where, pursuant to an open offer, a listed entity intends to re-classify erstwhile promoter group entities but such entities are not traceable or not co-operative. Exemption under the open offer cases are subject to certain conditions, including that the intent of the existing promoter to re-classify should be disclosed in the letter of offer.

The regulator has suggested that all entities falling under promoter and promoter group should be disclosed separately even in case of ‘nil’ shareholding.

Further, listed entities have been proposed to obtain a declaration on a quarterly basis from their promoters on the entities or persons that form part of the ‘promoter group’.

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