Promoters may have to tell more

Securities and Exchange Board of India (Sebi) may soon force companies to disclose the ownership of investment firms and non-promoter entities holding stakes in them, to establish their relationship with the promoters.

The secondary market advisory committee appointed by Sebi has been asked to prepare a comprehensive disclosure format because it is felt that promoters hold significantly higher stakes in companies than disclosed.

In many cases, promoters invest in their companies through entities floated by their spouses and relatives, who cannot be directly traced to the promoter.

According to market sources, the issue was discussed at a recent meeting of the secondary market advisory committee, which comprises representatives of the finance ministry and Sebi, besides academics and market experts.

While the committee has stressed an elaborate disclosure format, it has suggested certain changes to be incorporated in the new format.

The sources said promoter holding in Indian companies ranged between 25 per cent and 40 per cent. However, a scrutiny of the top shareholders' list of various companies and their direct or indirect relationship with the promoters could reveal a significantly different picture of the actual promoter holdings, they added.

Such disclosure will be vital for mergers and acquisitions, open offers or buybacks as also for encountering takeover bids.

In its meeting held in Mumbai last week, the proposal was accepted in principle. The capital market regulator will post the final format on its website.

The Sebi board will take up the issue after receiving comments. Market sources said while the move was a major step towards setting high corporate governance standards, it could face opposition from a section of India Inc.

The sources cited the pressure mounted by corporates against the recently introduced Clause 49 of the listing agreement, which has now been diluted. The Companies (Amendment) Bill has also been sent back to the drawing board for alterations after industry chambers opposed several of its key proposals.

Under the lens

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• Companies may be told to disclose the ownership of investment firms and non-promoter entities holding stakes in them
• Disclosures will be vital for mergers and acquisitions, open offers or buybacks as also for encountering takeover bids
• The move could face opposition from a section of India Inc
• The secondary market advisory committee has approved the proposal in principle