The Securities Exchange and Board of India (Sebi) has made some key changes to listing agreements. This will enhance transparency and align public shareholding norms with the new rules notified by the government.
Earlier, after a new listing, a company’s shareholding pattern would be known, in the normal course, only after the quarter ended. A company that listed in October, for example, is obliged to give its first full-fledged shareholding pattern only by 21 January. Now it has to be given a day before listing, which ensures that shareholders have the same level of information available to insiders. This move will also end speculation on large shareholders exiting initial public offers shortly after listing. This new rule will also be applicable when a capital restructuring exercise results in the equity changing by 2%.
Another key amendment is the separation of shareholding held in the form of depositary receipts (DRs) into public and promoters. That will reveal the actual promoter stake in companies that have issued DRs. Sebi has also aligned the listing agreement with the Securities Contracts (Regulations) Rules (SCRR), 1957. The government had amended these rules, and fixed a minimum 25% shareholding for all listed companies, except public sector companies that are allowed a 10% floor. Earlier, the listing agreement, too, had a 25% public shareholding requirement, but with several relaxations. For example, companies that had originally listed with a 10% float were allowed to retain that level. Companies with a Rs 1,000 crore market capitalization were exempted. These relaxations will go, and the SCRR will apply. Sebi has also amended one clause, which specified how companies, which did not meet this 25% floor, could raise the public shareholding. They can do so by issuing fresh shares, or an offer for sale by the promoter, or by the promoters selling in the secondary market. A fourth clause, which said that any other method not detrimental to the minority shareholder too could be used, has been struck off. This was an ambiguous clause, which may have been misused.
On the disclosures front, Sebi has made it mandatory for listed companies to maintain a website. This may seem trivial in today’s times, but is very relevant for the average investor. Even now, some companies do not host a website, and even if they do, relevant information—such as results and material disclosures—may not be available. Sebi has mandated a website that will have basic information on financials, business and disclosures. But it may have to nudge companies to do more. Financial releases, investor presentations, conference call webcasts or their transcripts are not made available by all companies on their websites. Even important information such as schemes of arrangement, for example, are not uploaded. Financial results are not always uploaded on time and if they are, are not often archived. This is applicable more for small and medium companies, and certain multinational companies.
Sebi has also made it mandatory for companies to make standard disclosures on their tie-ups (involving equity issuance) with media outlets. These will be disclosed to the stock exchanges as usual, but also hosted separately on company websites. All these amendments will enhance the standard of disclosures made by listed companies, benefiting minority shareholders.
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