Ltd SEBI circular on achieving min public shareholding
Q1. What is the background for reduction of promoter shareholding to 75% or ensuring min. 25% public shareholding?
Regulation 38 of SEBI (Listing Obligations and Disclosure Requirements), Regulations 2015 read withRule19(2)(b)andRule19AofSecuritiesContractRegulationRules1957makesitmandatory for entities who have listed their equity shares on stock exchange to maintain a min. public shareholding of 25%. This will ensure market balance of promoter and public shareholding and reduce volatility in market.
Q2. How many circular have been passed by SEBI specifying methods of achieving min. public shareholding?
Sl.no Date of circular No. of methods specified
1 November 30, 2015 SEBI circular on achieving min. public shareholding
i. Issuance of shares to public through prospectus;
ii. Offer for sale of shares held by promoters to public through prospectus;
iii. Sale of shares held by promoters through the secondary market in terms of SEBI circular CIR/MRD/DP/05/2012 dated February 1, 2012;
iv. Institutional Placement Programme (IPP) in terms of Chapter VIIIA of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009;
v. Rights Issue to public shareholders, with promoter/promoter group shareholders forgoing their entitlement to equity shares, that may arise from such issue;
vi. Bonus Issues to public shareholders, with promoter/promoter group shareholders forgoing their entitlement to equity shares, that may arise from such issue;
vii. Any other method as may be approved by SEBI on a case to case basis.
For this purpose, the listed entities may approach SEBI with appropriate details. SEBI would endeavour to communicate its decision within 30 days from the date of receipt of the proposal or the date of receipt of additional information as sought from the company.
2 February 28, 2018 SEBI added two more methods of achieving min. public shareholding:
a. Open market sale: Sale of shares held by the promoters/promoter group up to 2% of the total paid-up equity share capital of the listed entity in the open market, subject to five times’ average monthly trading volume of the shares of the listed entity;
Conditions for open market sale:
Ltd SEBI circular on achieving min public shareholding
a. The listed entity shall, at least one trading day prior to every such proposed sale, announce the following details to the stock exchange(s) where its shares are listed:
i. the intention of the promoter/promoter group to sell and the purpose of sale;
ii. the details of promoter(s)/promoter group, who propose to divest their shareholding;
iii. total number of shares and percentage of shareholding proposed to be divested; and
iv. the period within which the entire divestment process will be completed.
b. The listed entity shall also give an undertaking to the recognized stock exchange(s) obtained from the persons belonging to the promoter and promoter group that they shall not buy any shares in the open market on the dates on which the shares are being sold by promoter(s)/promoter group as stated above.
c. The listed entity, its promoter(s) and promoter group shall ensure compliance with all applicable legal provisions including that of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 and Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
b. Qualified Institutions Placement: Allotment of eligible securities through Qualified Institutions Placement in terms of Chapter VIII of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009
SEBI has now again added two more methods by which min. public shareholding can be achieved:
1. Increase in public holding pursuant to exercise of options and allotment of shares under an employee stock option (ESOP) scheme, subject to a maximum of 2% of the paid-up equity share capital of the listed entity. Subject to conditions
2. Transfer of shares held by promoter(s) / promoter group to an Exchange Traded Fund (ETF) managed by a SEBI registered mutual fund, subject to a maximum of 5% of the paid-up equity share capital of the listed entity.
Ltd SEBI circular on achieving min public shareholding
Q3. Whataretheconditions thatareprescribed fortwomethods viz.issuepursuanttoESOP and Transfer of shares to exchange traded fund, brought in bySEBI to achieving min.public shareholding?
If any entity is proposing to utilize route of issue of employee stock option plan for increase in public shareholding, then it is stated by SEBI that maximum of 2% paid-up equity share capital of the listed entity can be diluted and ESOP scheme framed in this regard shall be in compliance with the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021. Further, it is also stated the promoter(s) / promoter group shall not be allotted any shares under these schemes.
Q4. If promoter or promoter group wants to utilise method of transfer of shares to ETF to achieve min. public shareholding then what are the various compliances that needs to be done?
The listed entity shall, at least one trading day prior to such proposed transfer, announce the following details to the stock exchange(s) where its shares are listed:
i. the intention of the promoter(s) /promoter group to transfer shares and the purpose of such transfer;
ii. the details of promoter(s)/promoter group who propose to transfer their shares in the listed entity;
iii. total number of shares and percentage of shareholding proposed to be transferred; and
iv. Details of the ETF to which shares are proposed to be transferred by the promoter / promoter group. The listed entity shall also give an undertaking to the recognized stock exchange(s) obtained from the persons belonging to the promoter and promoter group that they shall not subscribe to the units of such ETF to which shares have been transferred by promoter(s) / promoter group entities for the purpose of MPS compliance.
Q5. Can a company utilize a mix of above methods to achieve min. public shareholding? What has been gathered till now from market practice till now is that most of the companies have achieved min. public shareholding by utilizing one of the above methods. There is no case where a mix of above methods was utilized to reduce shareholding. So ideally only of the above methods could be utilized for achieving min. public shareholding. Also, it needs to be remembered that reductionin shareholding needs to bedonein compliancewith otherapplicableprovisions ofSEBI viz. SEBI LODR, SEBI PIT and SEBI SAST.
Q6. Can a company suggest any other method of achieving min. public shareholding other than those stated above?
Ltd SEBI circular on achieving min public shareholding
SEBI has by its circular dt: February 3, 2023 and all its earlier circulars has stated that SEBI may consider any other method of achieving min. public shareholding on a case specific basis. It has further stated that listed entity shall approach the Board with an application containing relevant details to obtainpriorpermission. SEBIin this regardwouldtryto communicateits decisionwithin 30 days from the date of receipt of the proposal or the date of receipt of additional information as sought from the listed entity. So entities who do not want to avail the above referred method may apply for any suitable method to SEBI for reduction of shareholding. But that method as guided by SEBI would be relevant for a particular entity only and cannot be applied by other entities.
Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement
