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Sebi to alter listing norms

Janaki Krishnan

The Securities and Exchange Board of India is to amend the continuous listing norms so as to level the playing field for all companies.

Currently, there are varying cut-off points for minimum public (non-promoter) shareholding, depending on the time and the regime in which the company went public in the first instance.

The existing arrangement is biased against companies that went public at a time when the public shareholding norms were liberal, going up to 60 per cent. In recent times, the norm has been brought down to a mere 10 per cent. The continuous listing agreement seeks to ensure that a minimum level of floating stock is available to the investing public at all times post-listing.

Clause 40A of the listing agreement, which deals with the issue of continuous listing, was most recently amended on May 2, 2001, to read: "... the company shall maintain on a continuous basis the minimum level of non-promoter holding at the level of public shareholding as required at the time of listing." This meant a company was bound throughout to the level of public (non-promoter) shareholding that was specified at the time of its initial public offering.

Under the existing regulations, there are four levels at which public float is to be maintained on a continuous basis: 60 per cent, 40 per cent, 25 per cent and 10 per cent, depending on the time when these companies had entered the market.

Companies that are likely to face a problem in this respect are those that entered when the public holding requirement was higher. In November 2000, the Sebi board had decided that new companies coming to the market could do so with a minimum 10 per cent public float. This was ratified by a gazette notification last year.

Sebi sources said the listing department was planning to amend the regulations appropriately and compress the various levels to a uniform 10 per cent.

The problem has cropped up chiefly because of the spate of buybacks and open offers in the past two years. The buybacks and the open offers made during a takeover has led to some changes in the holding pattern so that in many of the older companies, the non-promoter shareholding perhaps has fallen below the level required under Clause 40A.

Regulations related to open offers require that the acquiring company make an offer to the shareholders of the acquired company to buy out a minimum 20 per cent of their equity. In the case of buybacks, current rules specify that up to 10 per cent of the equity in the company can be bought back and extinguished in a single year.

Sources said the initial tussle between the listing and primary market departments erupted because of this factor and it had been suggested that takeover regulations must be subject to the continuous listing restrictions.

However, since there appeared to be no scope for compromising with the takeover regulations, it has been decided that the listing requirements would be amended to suit the current requirements.

Sebi is learnt to be taking this step after representations were made by a number of merchant bankers over the apparent conflict in the continuous listing agreement and norms for buybacks and open offers.

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