The Securities and Exchange Board of India (Sebi) has kept its promise by coming down hard on the promoters who failed to bring down stakes below the 75 per cent mark. Some of the 105 companies are already falling in line with Adani Ports and Sundaram Clayton filing offer documents to sell shares through the less-used institutional placement programme (IPP). Meanwhile, industry body Assocham has asked Sebi to consider a three-month extension in deadline, terming the moves as "harsh".
Assocham seems to have a point. A sale is not a unilateral transaction. Just because somebody wants to sell, it is not necessary that a sale would happen. Even if shares are sold for free, it is the prerogative of the buyer to take it or not. If there were no takers should this be held against the company or promoters? For example, on June 3, Essar Ports, BGR Energy and Omaxe put their shares on the block. But, they could not sell enough to meet the 25 per cent public holding mark. Now, is this entirely the company's fault? Should these companies not be treated differently from willful defaulters?
Unfortunately, these three also figure in the list of defaulters and have to suffer several penal actions. One can take the argument that the rules were in public domain for three years and the companies could have sold the shares earlier. But like Assocham says, the times were not very conducive.
The body said in a statement on Sunday, "While it is true that it has been three years since Sebi had asked listed firms to take firm steps to increase public holding, it must also be realised that selling stocks in the marketplace is a function of sentiments or else the promoters would be compelled to offload equity at a distress price. This is particularly true about the small and mid-cap companies."
It is not the business of the market regulator to ensure good valuations for the promoter. But Sebi has, in the recent past, allowed significant additional time for compliance of promoter holding norms in the case of MCX Stock Exchange (MCX-SX).
MCX-SX interpreted rules for a similar stake paring, though under a different law/regulation, in an innovative manner by issuing warrants in lieu of shares. Though the promoter had all the time in the world to bring down stakes, it was argued that due to Sebi actions buyers fled and the seller could do little and so on. Therefore, under a scheme of arrangement, warrants were issued in lieu of shares to the extent of the excess shareholding.
Thus, while the promoters had the voting rights to the extent allowed in law, they continued to have a much higher economic interest. After a protracted legal battle, Sebi agreed to allow the exchange an extended timeline to bring down the interest held through warrants, while giving it permission to do normal business.
Sebi's innovative measure of freezing of proportionate voting rights of promoters in the order against 105 firms seems to be a converse of the MCX-SX formula. By logical extension, affected companies should then check with the regulator whether they will be allowed to issue warrants to the extent of non-compliance and sell these off at their convenience. What applied to Peter should apply to Paul, too.
