)
At the Confederation of Indian Industry (CII)'s national council meeting on Friday, business leaders asked Sebi Chairman U K Sinha to reconsider the norms it had introduced in February this year. These norms had made it mandatory for all listed companies to get any scheme of arrangement vetted by the securities market regulator. To successfully pass such resolutions, companies also need the approval of most minority shareholders, under the new rules.
“The issue of promoters not being allowed to vote on the mergers...it is a harsh provision…I urge you to look at it, especially in the case of wholly-owned subsidiaries, where nobody's interest is diluted,” Arun Nanda, director of Mahindra & Mahindra, told the Sebi chief.
Godrej Group Chairman Adi Godrej said, “Being a listed company is becoming more and more difficult. Certain decisions can be only taken by minority shareholder; this might impact the companies wanting to list.”
Addressing industry concerns, Sinha said the new norms had been introduced, as there were several cases in which interests of minority shareholders were being compromised. “We are not in a position to relook at the norms that prevent promoters from voting in scheme of arrangements. Most of the concerns have been taken care of in the second (M&A) circular we issued in May. Sebi scrutiny is, anyway, much less in the case of wholly-owned subsidiaries. However, if there are any further complaints, Sebi is willing to look at those,” he said.
CII members also voiced concern on the growing dominance of foreign institutional investors (FIIs), financial savings moving out of equities and the sharp decline in raising equity capital. “In the last four-five years, we have seen massive movement of money out of financial savings into asset classes such as gold and real estate. At a time when you are seeing an increase in transparency in the financial market, and rightly so, the rest of the system is less transparent. We have seen financial savings move into less transparent part of the economy,” said Uday Kotak, chairman, Kotak Mahindra Bank.
“In the 80s, the market was dominated by Indian institutions. Since the last 10 years, the market is being dominated by FIIs. Even if you want to raise just Rs 200 crore, bankers want us to go abroad,” said Nanda.
Sinha said the regulatory arbitrage would be short-lived, as everywhere, things were becoming more and more transparent. He added the markets would deepen if pension money was invested in equities. “Take the example of any country, including the US. The asset management industry can develop only when you allow pension money to be invested in the market. Unfortunately, for a variety of reasons, pension money is not allowed to come into the market,” he said, urging corporate India to look at investing pension money into equities.
“Up to 15 per cent of EFPO (Employees’ Provident Fund Organisation) money can be invested in the market. But that's not happening. If that much money would have come into the market, our market would have provided great counterbalance to FIIs,” he said.
