The regulator on Wednesday proposed three options to increase public holding post the corporate insolvency resolution process.
All listed companies are required to maintain a minimum public shareholding of at least 25%. However, companies undergoing insolvency resolution under the Insolvency and Bankruptcy Code(IBC) have been granted certain relaxations from complying with this rule.
For such companies if the public holding falls below 10%, then they need to bring it to 10% within a period of 18 months and to 25% within three years. Companies whose public holding falls below 25% but is above 10%, need to bring it to 25% within three years from the date of such fall. The shares allotted to incoming investors will also locked-in for one year.
The regulator based on the suggestions of its expert committee has proposed three options.
After the corporate insolvency resolution process(CIRP), companies may be mandated to achieve10% public shareholding within six months and 25% within three years from the date of breach of the norm, said Sebi.
The other two options suggested by the regulator are companies may be required to have atleast 5% or 10% public shareholding at the time of relisting.
The regulator also proposed that the one-year lock-in requirement would be removed to help companies meet the public holding rule.
“Thus, achieving MPS compliance through means involving off-loading of shares by the incoming investor/ promoter within one year is not possible. Therefore, it may be permitted to free such shares from lock-in so as to help achieve minimum public shareholding,” Sebi said in a discussion paper seeking public comments by September 18.
The review of rules comes in the wake of public shareholding in companies undergoing resolution process dropping to abysmally low levels.
“In one recent case it was observed that post-CIRP the public shareholding has decreased to 0.97%, and showed 8764% increase in its share price in spite of additional preventive surveillance actions including reduction in price band and moving the scrip into trade for trade segment,” the regulator said.
“Such low public shareholding raises multiple concerns like failure of fair discovery of price of the scrip, need for increased surveillance measures etc. and may therefore pose as a red flag for future cases. Low float also prohibits healthy participation in trading of such companies majorly due to issues related to demand and supply gap of shares.“
Sebi said these exemptions for IBC cases were given to ensure revival of the company and also to provide any listing gains to shareholders.
“While the revival of corporate debtor is essential for all stakeholders, it is also imperative to maintain market integrity in respect of such companies,” the regulator said.
Sebi has also proposed enhancing disclosures such as details of funds infused, creditors paid-off, additional liability on the incoming investors due to the transaction, source of funding and pre and post net worth and shareholding of the company among others.