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The Securities Appellate Tribunal (SAT) on Wednesday dismissed an appeal filed by Gillette India against market regulator Securities and Exchange Board of India (Sebi) for rejecting its proposal to achieve the minimum public shareholding requirement. The consumer goods firm, in which promoters, including Procter and Gamble (P&G), hold an 88.76 per cent stake, had proposed a complex three-stage approach, which included reclassification of certain promoters as public shareholders.
The tribunal, which hears appeals against Sebi orders, also vacated the temporary stay it had granted to the company from complying with the 25 per cent public float requirement, the deadline for which has ended on June 3. SAT termed the company’s proposal for reducing promoter holding as “dubious” and said the company should instead adopt a “simple and straight-forward approach” suggested by Sebi.
“We fail to understand as to why the appellant (Gillette) does not comply with the requirement of 25 per cent of public shareholding by adopting a simple and straight forward approach and offering the shortfall in 25 per cent public shareholding to the public through one of the methods elucidated by Sebi…instead of adopting a contentious and circuitous method which is against the spirit of law, as one proposed by them presently,” said Jog Singh, presiding officer (officiating), SAT.
The SAT verdict is a setback to Gillette India, which will now have to sell up to 14 per cent shares to public investors through the offer for sale (OFS) route or some other Sebi-approved method. Shares of Gillette on Wednesday ended 2.46 per cent higher at Rs 2,231.4 on BSE, while the benchmark Sensex lost 1.47 per cent to 19,177.76.
J N Gupta, managing director, Stakeholders Empowerment Services, said: “It’s a fair judgement. You can’t just say that I was related to you yesterday and today, I am not related. As you require three years to become promoters, to become a non-promoter also there has to be a cooling off period. Now, the company will have to sell shares in the open market to genuine public.”
The verdict is a victory for the market regulator, which has been against allowing companies reclassification of promoters for merely increasing the public holding. Sebi is of the view that such inter se transfer of shares doesn’t lead to ‘broad-basing or dispersing of ownership.’
The SAT judgement could also impact a couple of more companies, including Blackstone-backed Gokaldas Exports, which, too, has reclassified some of its promoters as non-promoters. The tribunal has already asked Sebi to check whether there have been any instances of violation of minimum public holding norms by corporates.
Amit Tandon, managing director, IiAS, believes more clarity is needed on the area of re-classification of promoters. “Leaving out certain cases, for the most part, the basis (of reclassification) has remained fuzzy. Clear guidance which will then spell out the rights and the responsibilities of the ‘residual’ promoter’ needs to be established. Reclassification impacts not just the capital markets, but also banks and other lenders, who may have taken commitments by way of personal guarantees or shortfall undertakings from promoters,” he said.
SAT also dismissed Gillette counsel’s argument of delay on Sebi’s part for coming out with circular prescribing ways to meet the shareholding requirement.
“Sebi was under no obligation to issue repeated circulars prescribing method after method which could be adopted to achieve the aforesaid goal, but it did so to help listed corporates embark upon the right path in order to ensure a larger public float in the Indian capital market,” said Singh.
Gillette India proposal included an inter se transfer of four per cent holding from Indian promoters---Poddar group--to multinational firm P&G at a premium of 25 per cent to market price. Later, P&G was to sell about five per cent holding in the company through OFS. Currently, the shareholding of Poddar group and the P&G stand at 12.9 per cent and 75.9 per cent, respectively.
On the said proposal, SAT said P&G was violating the law by raising its shareholding substantially beyond the 75 per cent.
GILLETTE VS SEBI: NOT A SMOOTH SHAVE THIS
October 2012
- Gillette India seeks Sebi guidance on its proposed ‘sell down’ transaction for meeting the 25 per cent minimum public shareholding requirement
- Sebi through a letter conveys Gillette India that its proposed transaction is not acceptable as means of achieving minimum public shareholding requirements
- Gillette India moves SAT, as its transaction is ‘summarily rejected without assigning any reasons’
- SAT directs Sebi to pass a ‘reasoned order’ for rejecting Gillette’s proposal
- Gillette again files application in SAT. The tribunal directs Sebi to give its decision in two weeks
- SAT grants temporary stay to Gillette on MPS norm
- SAT reserves judgment on Gillette India appeal
- SAT dismisses Gillette appeal; uphelds Sebi order rejecting firm's proposal
