Sebi provides additional methods to comply with minimum public shareholding requirement; rationalises existing ones
Feb 3, 2023
Sebi on Friday provided two additional methods -- rights issue of shares as well as issuance of bonus shares to public shareholders -- to listed companies to achieve compliance with the 25 per cent minimum public holding requirement.
The move came after Sebi received representations from listed entities and other stakeholders requesting relaxation from compliance with the conditions specified in the existing methods and approval for using non-prescribed methods to achieve minimum public shareholding (MPS) compliance.
In a circular, Sebi said listed entities can adopt rights issue of shares to public shareholders and bonus issue to public shareholders to comply with the MPS requirements. However, promoters will have to forgo their entitlement to equity shares that may arise from such issuances.
Further, the regulator said listed companies can opt for any other method as approved by it on a case to case basis. In such cases, listed entities would approach Sebi with an application containing relevant details to obtain prior permission.
In addition, the regulator has rationalised existing mechanisms.
At present, companies can opt for methods such as issuance of shares to public through prospectus; offer for sale (OFS) of shares held by promoters to public through prospectus; OFS of shares owned by promoters through the stock exchange mechanism; and allotment of equity shares under the Qualified Institutions Placement route.
Under the rule, companies are required to have a public shareholding of at least 25 per cent within three years of being listed.
With regard to the existing rule of promoters selling up to 2 per cent stake in the open market and promoters offloading up to a maximum of 5 per cent stake during a financial year, subject to certain conditions, Sebi said promoters can use either of the mechanisms to comply with MPS requirements, but not both.
The listed entity should at least one trading day prior to such proposed sale, announce to the stock exchange details such as the intention of the promoter to sell and the purpose of sale; the details of promoters who propose to divest their shareholding; total number of shares and percentage of shareholding in the listed entity that is proposed to be divested; and the period within which the entire divestment process will be completed.
Also, the listed entity would have to give an undertaking to the stock exchange obtained from the persons belonging to the promoter group stating that they will not buy any shares in the open market.
In case of increase in public holding pursuant to exercise of options and allotment of shares under an employee stock option (ESOP) scheme, this is subject to a maximum of 2 per cent stake in the listed company. Sebi said that promoters would not be allotted any shares.
For transfer of shares held by promoters to an Exchange Traded Fund (ETF), subject to a maximum of 5 per cent stake in the listed entity, Sebi said listed entities will have to disclose certain things to stock exchanges at least one day prior to such proposed transfer.
Sebi has asked stock exchanges to monitor the methods adopted by listed entities to increase their public holding and comply with MPS requirement and any non-compliance observed by bourse would be reported to the regulator on a quarterly basis.