Sebi examines free-float shareholding rules; looking at introducing SPACs
Mumbai: The Securities and Exchange Board of India (Sebi) is examining the effective public shareholding in listed companies. It is also looking at introducing special-purpose acquisition companies (SPACs) in the country.
“We are examining along with exchanges what is the minimum public shareholding and what is the actual float…Whether 25 per cent minimum public shareholding does actually mean 25 per cent float,” said Ajay Tyagi, chairman, Sebi while addressing the capital market conference organised by industry body FICCI.
Free float refers to the shares of a company held by the public shareholders.
Tyagi said the exercise is not against any specific company and the regulator does not have any intention of increasing the threshold for minimum public shareholding. At present, all listed companies are required to maintain a minimum public holding of 25 per cent.
“Public shareholding adds to liquidity in the market. That leads to better price discovery and efficiency. Some of the free floats are held by institutional shareholders, who hold them till maturity. We in consultation with exchanges are looking at what is the free float,” Tyagi said.
The Sebi chief also said disclosures by many companies are lacking.
“While all the fields are being filled in, in many cases, they (disclosures) appear more like a check-box exercise. This is not acceptable. Documents are important as the financial results, annual reports, corporate governance reports and others need the level of quality the investors deserve,” Tyagi said.
Companies, management, and boards should ensure that disclosures of material events are done not just in letter but in spirit also, he said.
“Not only the periodic disclosures, we often see that companies do not go beyond the deemed material events specified in SEBI Regulations to disclose material events,” said Tyagi.
An expert committee appointed by Sebi is reviewing rules on SPACs– a listed shell entity created with the purpose of acquiring a company.
“SEBI’s Primary Market Advisory Committee is deliberating on whether a framework for SPACs should be introduced in India and if yes, given certain concerns being raised on such vehicles, with what safeguards,” Tyagi said
A SPAC is a blank-cheque company, without any past financial records and assets to be disclosed and audited. Its initial public offering (IPO) process is faster compared to the IPO process of an operating company.
The sponsors of a SPAC raises money from investors for the main purpose of acquiring another company. The funds raised through an IPO are held in a trust which earns interest till such time it is able to identify a potential merger or acquisition opportunity to invest the funds.
“As far as India is concerned if such reverse mergers were to happen. That will have to go through NCLT( National Company Law Tribunal) under the Companies Act. If we are going to have a framework, we would rather have one which is under Sebi’s domain. But some of the concerns that have come up need to be deliberated to protect minority shareholders’ interest,” Tyagi said.
The Sebi chairman also said nominee directors on company boards also have an important role to protect minority shareholders’ interests.
“While independent directors have a critical role in protecting the interests of minority shareholders, another set of directors who ought to play a more active role in improving corporate governance standards are representatives of institutional shareholders on the Board, whether as nominee directors or otherwise. I strongly urge such representative directors to act as a bulwark along with the independent directors in support of strong governance in the companies,” Tyagi said. The regulator recently revised norms to strengthen the role of independent directors in company boards.
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