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Will SEBI's steps help investors?
Thu, 6 Jun Pre-Open

In June 2010, the Securities and Exchange Board of India (SEBI) had directed all listed companies to have a minimum public shareholding (MPS) of 25% in three years time period. SEBI had brought this regulation so that dispersed shareholding structure is maintained which would help bring sufficient liquidity and which in turn would help in fair price discovery, thus less susceptible to manipulation.

The said deadline of three years ended yesterday. However there are still approximately 108 companies, which include names like Adani Ports, BGR Energy, Videocon industries, Tata Teleservices (Maharashtra), Fresenius Kabi Oncology, etc. who have failed to meet the said requirement. So what is SEBI doing about this?

SEBI had issued letters to the companies repeatedly advising them to take appropriate steps in order to meet the said time lines of MPS. The companies were also warned by SEBI. In case they failed to meet the requirements within the stipulated time frame, the regulator would take steps against them. As per SEBI, the promoters and the management of the company are to be blamed for not offloading the stake and thus not following the issued orders. Thus, SEBI has laid down some steps against such promoter/promoter groups or directors of such companies. It will take the following steps on such non-compliant companies till they comply with the MPS requirement -

  1. Freezing of voting rights and corporate benefits like dividend, rights, bonus shares, split, etc.
  2. Prohibiting the promoters/promoter group and directors from buying, selling or otherwise dealing in the securities of their respective companies, except for the purpose of complying with the minimum public shareholding requirement
  3. Restraining the promoter/promoter group and directors from holding any new position as a director in any listed company
But will these steps taken by SEBI really hasten promoters to follow the guidelines? Will this move help minority investors? This remains to be seen.

Moreover, the minimum shareholding guideline, though a step in the right direction, may do little to deter corrupt promoters from committing fraud. Remember the Satyam scam where the promoter managed to create such a big scam while holding less than 5% stake in the company. Given such cases, investors must beware of investing in companies with poor corporate governance.

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