Indian regulator unveils plans to help promoters reduce holdings

SEBI defines public shareholding as the stakes in a company held by persons other than the promoter, the acquirer or any firms acting in collaboration with these two parties.

Where the public shareholding is below 25% - or below 10% for public sector units - sponsors would be able to reduce their stakes through an institutional placement program, LiveMint reported. Under this system, there must be at least 10 allotments to investors of either new or existing shares amounting to no more than 10% of equity capital or until the 25% public shareholding threshold is reached. Pricing is discretionary but must be declared beforehand.

Alternatively, promoters could lower their stakes through a new offer for sale window on the stock exchange. Uninhibited by the current 1% limit on price variation from the stock's previous close, promoters would be able to unload large amounts of shares with relative flexibility on pricing.

Share buybacks through tender offers - whereby a transaction is proposed to shareholders at a fixed price - are rarely used, with firms generally opting for the open market route. SEBI wants to make the tender buyback acceptance mechanism proportionate to the size of the shareholding. At present, it is based on the number of shares submitted as a percentage of the total buyback issue size.

LiveMint notes that while the changes represent a positive step, the Indian government, as a major promoter, stands to benefit most from them. One possible outcome is that a lot of public sector companies could flood the market with equity, which might harm overall investor sentiment. On buybacks specifically, the tender offer system will be watched carefully to ensure it isn't used to outmuscle minority shareholders.

Since last summer, SEBI has unveiled a raft of measures that affect private equity players. The minimum financial commitment for anchor investors in IPOs was increased; the ownership threshold at which investors are obliged to launch a takeover bid for an asset was raised from 15% to 25%; and comprehensive draft rules have been put forward that would update regulation of domestic funds, potentially giving SEBI more control over the industry.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• South Asia
• Regulation
• PIPEs
• Buyouts
• Exits
• India
• regulation
• SEBI
• Exit
• PIPE
• buyout