Promoters succeed in beating Sebi deadline

Promoters succeed in beating Sebi deadline

Mumbai: Promoters of most listed Indian companies have managed to convert their entire shareholding into dematerialized form and beat the Securities and Exchange Board of India (Sebi) deadline.

Those that haven’t done so by 30 September will see shares of their companies transferred to the so-called trade-to-trade segment, where price movements are capped at 5% and all transactions are delivery-based.

At least half the companies whose shares constitute the 50-stock index Nifty of the National Stock Exchange (NSE), and 56 of the top 100 listed firms on BSE were non-compliant with Sebi’s new rules in end-June, but the scene has dramatically changed in the past week.

The promoters of most Indian firms have succeeded in converting 100% of their holdings in demat form.

For instance, the promoter of Bharat Heavy Electricals Ltd completed the conversion into demat form on Tuesday, said a company official.

Similarly, Mahindra and Mahindra Ltd, Bajaj Auto Ltd, Tata Steel Ltd, Hero MotoCorp Ltd, Sterlite Industries Ltd, Bharat Petroleum Corp. Ltd, Tata Power Co. Ltd, Grasim Industries Ltd, Kotak Mahindra Bank Ltd and Ashok Leyland Ltd have managed to convert their promoter holdings into electronic form recently.

Hindustan Unilever Ltd and Jindal Steel and Power Ltd expect to complete the process in the next few days.

In an effort to ensure better price discovery and enhance transparency in the securities market, Sebi in September last year had said that only the stocks of those companies that have managed to convert 50% of their non-promoter shares into electronic form would be traded in the normal segment.

In June, the regulator directed all listed firms to convert their entire promoter group holdings into dematerialized form by 30 September.

Mint spoke to the 27 Nifty-listed firms that were non-compliant with this rule at the end of June.

In just a week’s time, almost all of them have converted their entire promoter holdings from physical to electronic form to stay compliant with Sebi rules.

According to BSE and NSE, of the 8,438 listed companies, promoters of 2,877 firms held shares in physical form in June and many of them were state-owned companies.

Most companies Mint spoke to said barring shares that are involved in litigation, all promoter shares are being converted into electronicformat by the end of this month.

The final status of promoter holdings of listed companies will be disclosed on the stock exchanges after 30 September.

Securities of non-compliant firms will be shifted from “T+2" segment to trade-for-trade segment.

Shares traded in the T+2 segment are settled within two working days following the day of trade, but when a company’s shares move to trade-to-trade segment, all transactions need to be delivery-based.

This means that irrespective of squaring up the transaction, intraday investors will compulsorily be required to give or take delivery.

This impacts volume and market capitalization of companies.

“Just because of a default by the promoters, who control the day-to-day management of a firm, shareholders are being punished," said an official with a brokerage firm who declined to be named.

Such shares could be removed from the equity derivatives segment as well, and there could be restrictions on intraday trading.

Recently, the regulator said it could also reduce the trading bands of non-compliant listed firms from 5% to 2%.

Some firms are still finding it hard to comply with the new norms and they may get penalized for this.

“Some companies are yet to comply and we are receiving communication from them. We are getting reasons like banks are holding physical shares as collaterals, or the promoter is outside the country and it is taking time for opening the demat account for the foreign entity of the promoter and so on," said a BSE official.