Lost certificates, foreign holders and fighting siblings derail process as September 30 deadline nears.
Many companies, especially those with multiple-promoter group shareholders, are facing trouble in converting their shares into the demat form, thus raising fears of default. Sebi has directed all listed firms to complete this process by September 30, failing which they could be dropped from derivatives segment. That would mean restrictions on intra-day trading. On Monday, in a public notice, the industry regulator said it could also cut trading bands from 5 per cent to 2 per cent.
According to market participants, many companies are grappling with practical issues in the process.
| TAKING STOCK | ||
| Promoters’ non-demat shares (in million)* | Promoter | |
| Coal India | 5,685 | Govt of India |
| NMDC | 3,568 | Govt of India |
| National Aluminium | 2,246 | Govt of India |
| Sterlite Industries | 1,507 | Sterlite |
| Hindustan Unilever | 1,135 | Unilever |
| * As on June 30, 2011 Source: Capitaline Compiled by BS Research Bureau | ||
While some of the promoter group shareholders have settled abroad and are in no mood to get back and go through the process of getting a PAN and open a demat account, some have lost/misplaced physical certificates. There are still some who have fighting siblings not co-operating for the conversion, putting the interest of public shareholders at risk, say brokers.
B Narasimhan, vice-president, Karvy Computershare, says some companies may miss the deadline. “There are problems,” he notes. “There are aged people who could not be contacted. In some companies, the holders have to be issued duplicate certificates — that takes its own time. Whenever such firms approach us, we have directed them to write the nature of the problem to the regulators and ask for an exemption or extension.”
A Business Standard study shows that 55 of the top 100 companies on the BSE (BSE 100) had promoter group shareholders holding physical certificates as on June this year. At least 27 of the Nifty 50 companies were also not compliant as of that month. Out of these, nine companies had their entire promoter holding in physical certificates. These included five state-owned firms namely, Coal India (5.68 billion shares), NMDC (3.56 billion), Nalco ( 2.24 billion), BHEL (331 million) and BPCL (198 million).
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A company secretary of one of the government companies says the Stock Holding Corporation of India has been given the task of converting the government shares into demat form. Officials in charge of implementation of the process say “there are issues” and they have received representations.
For example, some promoters are finding it difficult as opening of demat account requires a local permanent account number.
Overseas promoters of Hindustan Unilever, Glaxo and Maruti Suzuki do not hold any shares in demat. Siemens, Nestle India and Cummins India are other MNC arms with large physical shareholding. Among the major business groups, Tata Group’s Tata Global Beverages, Tata Steel, Tata Chemicals and Tata Power have between 700 and 6,000 physical shares. Mukesh Ambani holds 426 physical shares in Reliance Industries and brother Anil Ambani holds between seven and 21,603 in four group firms — at the end of the last quarter.
Market participants say some these could be cases where the buying shareholder had not registered for the transfer of shares after buying the shares from the promoters. “Nothing can be done in such cases as the shareholder is not traceable.” Prithvi Haldea of Prime Database Ltd says it is a “shame” if one is a promoter and says one has all these issues. “The promoters do not have any logical reason to oppose this,” he notes. “Any new process will face some difficulty initially. But these are not insurmountable.” Depositories said the process of dematting takes up to 15 days to complete.
(with inputs from Shubhashish)