No justification for SEBI action on non-dilution of promoter equity

Assocham is all for larger dilution of the shares among the public so that liquidity in the market increases through a larger public float

June 11, 2013 10:11 IST | India Infoline News Service
Describing the SEBI (Securities and Exchange Board of India) action against promoters of 100 companies which could not bring a minimum public holding up to 25% rather harsh, Assocham made a strong plea to the market regulator to take a less stringent action and give them at least another three months to meet the guidelines on public holding.

“While it is true that it has been three years since the SEBI had asked listed companies to take firm steps to increase public holding, it must also be realised that selling stocks in the marketplace is a function of sentiment 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,” Assocham Secretary General D S Rawat said in a statement on Sunday.

In a tough action, SEBI has restrained the promoter groups from raising funds from the market, barred them from selling and buying their company shares and receiving dividends in excess of 75% ceiling.

An overwhelming number of companies’ has been able to raise the public holding to 25%, particularly in the last few months as the SEBI deadline of June 3 was coming closer. But given the volatility in the market and thrashing of the values of the mid-cap shares, it was really difficult call to sell equity at a distress price.

Besides, there could have been procedural issues faced by some companies because of which the public offering could not have materialised. “Not all of them would have intentionally missed the deadline of the regulator,” the Assocham Secretary General said.

He said in the process of punishing the promoters, a huge amount of collateral damage has been done to the minority shareholders as the market sentiment around these companies has been hit hard eroding the wealth of the common shareholders, who had no say in the issue at all.

“Why punish the minority shareholders for none of their fault,” Mr Rawat asked and said instead of considering further action, as was indicated by SEBI, the market regulator should take a pragmatic and practical view of the situation.

“As it is, the sentiment in the market has not been good. Whatever movement is seen on the Sensex is largely restricted to the large caps and top class shares. The small cap and mid-cap shares have been thoroughly beaten and the retail investors have burnt their fingers. Under these circumstances, the price these shares would have got from further public offering would have been anything but true valuation” he said.

The Assocham Secretary General wondered whether the market regulator would be able to take similar harsh measures against the government in case the PSUs with more than 90% government holding do not divest in favour of the common investors.

“If the PSUs miss the deadlines of August 9, which they are likely to, will SEBI punish the largest shareholders in them (government). It remains to be seen how far the SEBI will be able to ensure level playing when it comes treatment of the private sector companies vis-à-vis the public sector firms,” the chamber Secretary General observed.
He said the ASSOCHAM is all for larger dilution of the shares among the public so that liquidity in the market increases through a larger public float.

On their part even the promoter groups do not have any apprehensions since with 75% they can maintain the same kind of hold on their companies. “thus, at best it could be the adverse market situation or procedural issues that would have come in the way of promoters diluting their stake and meeting the SEBI deadline,” chamber said.

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