Give exit route to dissenting investors: Sebi to listed firms

MUMBAI: Companies will have to give an exit option to shareholders if the money raised through a public issue is not utilised for the reason stated in the offer document. This was cleared by Securities and Exchange Board of India (Sebi), in a board meeting on Monday.

The market regulator also removed hurdles for listing of stock exchanges, allowed interoperability between multiple clearing corporations, permitted an electronic platform for primary debt issuances among others. Sebi will release discussion papers soon seeking comments from market participants on these topics.

“The Board approved the proposal to initiate public consultation process regarding exit opportunity to dissenting shareholders under Companies Act, 2013 in case of change in objects or varying the term of contracts referred to in the prospectus,” the regulator said in a press release posted on its website.
Section 13 (8) of the Companies Act says that a company left with unutilised funds after raising money from the public cannot change the objects stated in the prospectus unless a special resolution is passed and the promoters offer dissenting shareholders a way out.

Sebi also decided to ease rules for listing of stock exchanges. The regulator said its board had approved the listing of stock exchanges and would put in place a mechanism to ensure compliance with its regulations. Stock exchanges have been classified under infrastructure sector and Investors in these public utilities would have to make declarations on their being “fit proper” persons, it said.

“This is very good news and we wholeheartedly welcome this statement from Sebi clarifying the norms for listing of stock exchanges. We hope that NSE management will immediately proceed with a listing, in line with the wishes of its shareholders,” said Sohil Chand, Managing Director, Norwest Venture Partners India, which owns about 2.11% stake of NSE.

Several foreign investors had recently approached the finance ministry on the need to change the current rules. Their investments in stock exchanges had been stuck because of lack of liquidity.

“Since the stock exchanges from a systemic risk as well as operational perspective are highly sensitive and sophisticated, ensuring fit and proper status for its shareholders is important,” said said Tejesh Chitlangi, Partner, IC Legal. “However, some materiality threshold should be prescribed, above which a shareholder will have to meet the ‘fit and proper’ criteria. Otherwise monitoring fit and proper compliance for each non-institutional retail investors on and post listing would be difficult”.

Sebi plans to overhaul the corporate debt market by pushing all issuance onto an electronic platform in an attempt to improve efficiency and transparency in the price discovery process vis-a-vis the current over-the-telephone market.

The regulator will be soon initiating public consultation process on introducing primary market debt offering through private placement on electronic book. The electronic book would be created by entities to be named as electronic book providers (EBP). Stock exchanges, depositories and merchant bankers with a net worth above Rs 100 crore could seek prior approval before setting up EBPs.

Sebi will also come out with rules on disclosure requirements for green bonds. “The proposal with respect to issuance of green bonds will ensure increased investments in eco friendly projects and will also assist the country in reducing carbon footprint and comply with global best practices. The success would however be dependent upon the incentives which are provided to both the issuers as well as the investors,” Chitlangi said.

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