SEBI’s dilemma: To act or not?

Rohit Joshi & Ankita Chakrabarty/ ZRG

With many private sector companies again missing to adhere the Security and Exchange Board of India’s Monday June 3 deadline to comply with minimum public shareholding norm, the market is abuzz: will the regulator finally bite the bullet and extract compliance or defer again the deadline?

Experts are, however, unanimous that time for any more extension is over. They also seem to suggest SEBI to take strict action to ensure compliance from defaulting companies.

Announced in June 2010, SEBI’s minimum public shareholding norms aim to enlarge the space for public investors and push equity culture in the country. The amended Securities Contract (Regulations) Act requires all listed private companies to ensure a minimum of 25 percent public shareholding by June 3, 2013. In case of public sector undertakings, the minimum public shareholding norm has been set at 10 percent with an August 8, 2013 deadline.

To facilitate compliance, SEBI designed two new routes – Offer for sale (OFS) through stock exchanges and institutional placement programme (IPP) – in February 2012 to help companies cut promoter stake to the notified levels.

Since then, top Indian private sector companies like Reliance Power, Adani Power and MNCs like Berger Paints, 3M India, Honeywell Automation, Blue Dart along with PSUs NTPC, NMDC, RCF and Oil India opted for the OFS route. The IPP route was preferred by companies such as Godrej Properties, Godrej Industries, Prestige Estates Projects, Timken India, Mahindra Holidays & Resorts India, Thomas Cook (India).

Still, major players like Alstom T&D (80.31 per cent), Hindustan Media (76.94 per cent), Cinemax India (93.19), Wheels India (85.62 per cent), Hubtown (82.49 per cent), and Schneider Electric (78.13 per cent) have failed to adhere to SEBI norms. With stock exchanges and SEBI officially updating its data, the list could grow even bigger.

But, will SEBI act this time? “It will” suggests Prithvi Haldea, chairman and managing director of Prime Database, who tracks primary market closely.

“SEBI will definitely take substantial actions against them.”

Another expert concurs that non-compliant companies won’t get away this time from the market regulator’s wrath.

“There are many companies which have applied to SEBI for bringing down promoters’ stake. It may be possible that deadline may be extended by few weeks but penalty will certainly be levied on them. Magnitude of penalty will depend on the size of the company,” Avinash Gorakshakar, Research head, says.

Vivek Mahajan, Head of Research, Aditya Birla Money asserts that even last minute rush won’t help the cause of non-compliant companies.

“Sebi should take proper actions against those companies which have not adhered to the guidelines. I fail to understand why companies were waiting for the last moment to meet the deadline.”