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SEBI Watch: Tighten compliance for cos relisting post IBC resolution

Monday, Aug 24, 2020

 

By Rajesh Gajra

 

The Securities and Exchange Board of India has come out with a timely consultation paper on minimum public shareholding norms for companies coming from the corporate insolvency resolution process and seeking relisting.

 

The paper, which was released by on Wednesday, proposes to address the problems created by less than 10% minimum public shareholding by such companies and SEBI must proceed with it.

 

The resolved cases from the insolvency resolution process coming back to stock exchanges must have a minimum 10% public shareholding at the time of relisting. This will ensure better corporate governance standards from these companies.

 

Further, to prevent price manipulation in the trading of the shares of the relisted companies, if the post-relisting share price goes over to the mid-point of the 52-week high-low price immediately preceding the reference to the National Company Law Tribunal then the company should be required to have minimum 25% public shareholding within three months itself.

 

In the last two years, six companies got relisted on the stock exchanges after going through the corporate insolvency resolution process. These companies included Monnet Ispat & Energy, Ruchi Soya Industries Ltd, Alok Industries and others.

 

The SEBI paper noted that, as of March this year, one the six companies had a public shareholding of just 0.97%. It said that the share price of this company had increased by over 80 times since its relisting in January this year, in spite of preventive surveillance actions such as narrow price band and moving it into trade for trade segment.

 

"Low (public) float… prohibits healthy participation in trading of such companies majorly due to issues related to demand and supply gap of share," the consultation paper said.

 

The current SEBI norms give companies under insolvency resolution process a long rope. As a result of the insolvency resolution, if the public shareholding of a company falls below 25% and is above 10% it gets three years to bring it back to 25%. And, if it falls below 10% then it gets 18 months to bring it back to 10%.

 

There were three proposals suggested by the paper to address the problems emanating from the long time given to such companies to adhere to minimum public shareholding norm of 25%.

 

One option was to mandate companies to have at least 10% public shareholding at the time of relisting and achieve 25% over three years. Another option was to mandate a minimum 5% public shareholding at the time of relisting, and raise it to 10% and 25% over one and three years respectively. The third option would give the company time of six months to raise public shareholding to 10% and three years to raise it to 25%.

 

The best option is the first one which requires 10% public float at the time of relisting. There is no compelling reason for a company to enjoy all the benefits that accrue to it from its shares being listed and traded on the stock exchanges, and have a public float of less than 10%.

 

A minimum 10% public float is easily possible since the SEBI paper also sought to remove the lock-in restriction of one year, under its preferential issue of shares norms, for the new owners to the extent of compliance with the minimum float requirements.

 

The post-relisting disclosure requirements were also proposed to be considerably enhanced by the consultation paper. For instance, it wants the companies to disclose details of funds infused and creditors paid off under the insolvency resolution, and provide details of additional liabilities on the incoming investors due to the transaction or source of funding.

 

Overall, the consultation paper issued by SEBI will help in strengthening the hands of the public investors who hold shares in such companies post relisting.

 

 

LATEST ANNOUNCEMENTS

* SEBI proposes higher public float for cos post-insolvency (BS)

* SEBI proposes tighter relisting norms for CIRP companies (IE)

* SEBI calls for one-year action plan from NCDEX (Moneycontrol)

* SEBI floats consultation paper on format for business responsibility and sustainability reporting (PTI)

 

ORDERS, ADJUDICATION PROCEEDINGS

* SEBI imposes 500,000 rupees fine on individual in Taurus MF matter (PTI)

* SEBI fines SBI, LIC, Bank of Baroda for violating mutual fund norms (PTI)

* SEBI lifts trading ban on Ruchi Soya, four others in castor case 

* SEBI pulls up Kirloskar's promoters for fraud (HT)

 

REGULATIONS (Announced in the past three months)

* SEBI issues framework for bourses, listed cos to redress grievances 

* SEBI comes out with guidelines for local proxy advisors (ET)

* SEBI extends relaxations for share buybacks, open offers to Dec 31 

* SEBI extends up to Dec 31 relaxation in rights share issue norms

 

DATA FROM SEBI

 DateUnit LatestPrevious
FII/FPI net equity investmentAug 20US$ mln  (-)21.51  146.97
FII/FPI net debt investmentAug 20US$ mln

 (-)148.47

   96.26
DIIs net equity investment#Aug 17bln rupees   (-)5.70 (-)7.34
DIIs net debt investment#Aug 17bln rupees

      1.78

   20.31

 

IPO/FPO/NFO

* PGIM India MF seeks SEBI nod for balanced advantage fund

* Baroda Mutual Fund seeks SEBI's approval for value fund 

* Axis Mutual Fund seek SEBI's approval for value fund

* NSE-backed CAMS gets SEBI's go-ahead for IPO (BS)

 

SEBI IN NEWS

* SEBI, NSE urge banks to source gold from exchange platform for hedging (PTI)

* SEBI employees' group protests Garg's appointment as executive director (BS)

* Govt rejects SEBI's plea to tap phones to curb insider trading (BS)

* MCA initiates discussions with RBI, SEBI, DPIIT on transfer of data (ET)

 

Sources – Television, Print, or Web Editions of: PTI–Press Trust of India, BS–Business Standard, ET–The Economic Times, Moneycontrol, CNBC TV-18, Mint, BL–The Hindu Business Line, TH–The Hindu, RTR—Reuters, BT–Business Today, IANS–Indo-Asian News Service, IE— The Indian Express, ToI–The Times of India, BB-Bloomberg Quint

 

Internet links: http://www.sebi.gov.in

 

# –- Data not available for Aug 18, Aug 19 and Aug 20

 

End

 

Compiled by Vijay Malkar

Edited by Arshad Hussain

 

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This copy was first published on the Cogencis WorkStation

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