SEBI to get tough with companies with high promoter holding

About 200 listed companies with promoter stake of more than 75 percent are set for some tough talk from SEBI, which is mulling options including monetary penalties and eventual delisting of non-compliant entities.

New Delhi: About 200 listed companies with promoter stake of more than 75 percent are set for some tough talk from SEBI, which is mulling options including monetary penalties and eventual delisting of non-compliant entities.

The deadline for all private sector listed companies to bring down their respective promoter shareholdings to 75 percent or below is now just seven months away and the regulator has begun the process of identifying those entities that have initiated any process for adhering to this requirement.

"In the first phase, the Securities and Exchange Board of India (SEBI) has initiated a consultative process with such companies, wherein the regulator is asking them to provide a plan of action to achieve compliance and to resolve all outstanding issues," a senior official said.

The regulator will also inform these companies, whose number is estimated to be more than 200, about the potential penalties and other regulatory actions they might face in case of non-compliance, he added.

In the second phase, SEBI plans to ask stock exchanges to monitor compliance to these 'plans of action' on steps being taken to increase the public shareholding to a minimum of 25 percent and issue notices to the non-adhering firms.

At the same time, investors in these companies would also be informed about the potential risks they face due to penal actions to be taken against such entities, the official added.

Major companies where the promoter holding was more than 75 percent at the end of last quarter (September 30) include DLF, Jet Airways, Wipro, Tata Communications, Tata Tele, Sun TV, L&T Finance, Omaxe, Fortis Healthcare and Reliance Power.

Such firms also include Bajaj Corp, Essar Shipping, Essar Ports, Jaypee Infratech, Mahindra Holidays, Muthoot Finance, Adani Enterprises, Adani Ports, Oberoi Realty and JSW Energy.

Together, these companies would need to sell shares worth an estimated amount of more than Rs 30,000 crore to meet the required shareholding norms.

However, SEBI is worried over the fact that only a few companies have taken steps in the recent past to meet the requirement, although the market conditions have improved.

Some of the firms that have met the requirement in recent months include Godrej Industries, Muthoot Capital and Adani Power, while subsidiaries of a few multi-national companies have also announced plans to meet the deadline.

Among still non-compliant companies, some have said they intend to meet the deadline but no plans of action have been provided in most of the cases.

Of the total, more than 50 firms currently have a public holding of 10 percent or below, making it difficult for them to meet the deadline, while around 30-40 companies would need to sell just one percent or less shares to adhere to the guidelines.

The public sector companies have time till August 2013 to achieve a minimum public shareholding of 10 percent. Any action against the public sector companies would be discussed at a later stage as they have more time in hand and the minimum public shareholding limit is also lower in their case.

Also, the number of PSU firms with public shareholding of below 10 percent as of now is less than 20, although level of non-adherence is much larger as some of them have public holding of one percent or below.

The SEBI has provided various options over the recent months to help the companies meet minimum public shareholding criteria, by permitting options of rights/bonus issuances of shares, as also new routes like Offer for Sale (OFS) and Institutional Placement Programme (IPP).

Besides, in exceptional situations, where any company has a special difficulty in following the prescribed methods because of reasons peculiar to it, SEBI Chairman is authorised to approve a specific solution on case-to-case basis.

The listed entities desirous of achieving the minimum public shareholding requirement through other means can approach SEBI with the appropriate details, while companies can also seek any relaxation within the available methods.

However, SEBI is not willing to extend the deadline any further, which was set way back in 2010, the official said.

SEBI is even willing to allow 'corporate restructuring' as a means of achieving minimum public shareholding, but the companies desirous of using this method are required to seek prior approval from the regulator, he added.