Sebi allows 2,000 firms on bourses’ dissemination boards to raise capital
5 min read . Updated: 11 Oct 2016, 12:51 AM IST
PremiumSebi has also announced norms to provide exits to the shareholders of companies on the dissemination boards of stock exchanges
The Securities and Exchange Board of India (Sebi) on Monday allowed firms on the so-called dissemination boards of nationwide stock exchanges to raise capital to become eligible to list on these bourses.
The move will come as a respite to at least 2,000 companies that were moved to the dissemination boards of exchanges after migrating from defunct regional bourses and are keen to remain in the listed space.
On 2 September, Mint first reported that Sebi was going to introduce norms that would allow such companies to raise capital through preferential allotments and qualified institutional placements and become eligible to list and trade stocks on national exchanges such as BSE Ltd and the National Stock Exchange (NSE).
On Monday, Sebi also announced norms to provide exits to the shareholders of the companies on the dissemination board of exchanges.
“… if a company fails to comply with the listing norms even after the additional time, it will be directed to compulsorily make an exit offer to shareholders within the subsequent 3-6 months. If a company neither complies with the listing rules nor provides exit to the investors, strict penal action will be initiated by Sebi". a person familiar with the regulator’s thinking had said in the 2 September report.
Sebi, in its order, said that to facilitate listing on nationwide stock exchanges, the companies on the dissemination boards will be allowed to raise capital to meet the listing norms through the preferential allotment route.
At present, to be able to list on a national bourse, companies require higher paid-up capital and net worth and need to comply with strict listing norms. Under the norms, if a company listed on an existing/derecognized stock exchange wants to get directly listed on a national trading platform, it needs a minimum issued and paid-up capital of Rs1 crore and a minimum net worth of Rs3 crore.
Companies in the dissemination board of exchanges are prohibited from disturbing their capital structure till the time they comply with the listing norms of national exchanges or decide to liquidate their business to exit the listed space altogether.
A dissemination board provides an 18-month window for exclusively listed firms to either get listed on a national stock exchange or sell their businesses to another party.
According to the latest Sebi norms, in the process of raising capital through preferential allotment, if the allotment is made to promoters/public such that it is in excess of the threshold limits (5% or 25%) specified by Sebi’s takeover norms, the mandatory open offer will not be triggered as long as the overall holding of the promoter group does not exceed 75%.
Sebi said if the companies fail to list on the nationwide stock exchanges despite the new capital-raising mechanism, they will have to compulsorily provide an exit to investors.
“In order to protect the interest of all shareholders of such companies, an exit mechanism to investors will be displayed by stock exchanges. The oversight and monitoring of such exit mechanism shall be carried out by the designated stock exchange," Sebi said.
On 7 July, Mint had first reported that Sebi was likely to introduce new norms that would require companies on the dissemination boards of exchanges to compulsorily make an exit offer to their shareholders in order to ensure that the money of investors in these firms is not stuck indefinitely.
“Things were at a standstill for the companies on dissemination boards. Sebi’s new norms clearly address the issues being faced by both promoters and the non-promoter shareholders of these firms in a fair manner. This is because on one hand Sebi has allowed companies to find new investors to get listed by following easier procedural norms under ICDR (Issue of Capital and Disclosure Requirements) and on the other hand the regulator has stipulated exit norms for shareholder that too are quite feasible. The spirit is right and especially the companies which are associated with large groups will be the first ones to comply with the norms given by Sebi today," said Sudhir Bassi, a partner at Khaitan and Co.
While putting out the norms for shareholder exit, Sebi directed stock exchanges to ensure that promoters of companies make adequate efforts to provide an exit to their shareholders before removing the companies from the dissemination board.
Every company on the dissemination board was directed to submit a plan of action to indicate their intention to either comply with listing norms or to provide exit to shareholders within three months. And, the stock exchanges have been told to review the plan of action and ensure completion of the process within six months.
The market regulator warned that if the promoter or director of the company on the dissemination board does not demonstrate sufficient efforts to provide exit to shareholders, the company, its directors, its promoters and the companies that are promoted by any of them will be debarred from the market for 10 years.
Further, the shares of the promoters/directors of such non-compliant companies will be frozen and their bank accounts/other assets will be attached so as to compensate the investors.
Following the closure of 18 regional exchanges since 2014, around 3,000 companies were moved to the dissemination board of nationwide stock exchanges such as BSE and NSE, since they failed to get listed on the latter.
In January 2015, Sebi said that firms exclusively listed on exiting regional stock exchanges will be given 18 months to get listed on nationwide stock exchanges and till the time of listing, such firms could be moved to the dissemination board of a nationwide stock exchange.
Around 1,000 firms from the dissemination boards either got directly listed on nationwide bourses or exited their businesses altogether.
The Hyderabad Securities and Enterprises Ltd (erstwhile Hyderabad Stock Exchange), Coimbatore Stock Exchange Ltd, Saurashtra Kutch Stock Exchange Ltd, Mangalore Stock Exchange, Inter-Connected Stock Exchange of India Ltd, Cochin Stock Exchange Ltd, Bangalore Stock Exchange Ltd and Ludhiana Stock Exchange Ltd are among the 18 regional bourses that were granted approval to exit exchange operations.
