The Hindu : Business : SEBI caps creeping acquisition limit

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Wednesday, Jan 26, 2005

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Business

SEBI caps creeping acquisition limit

Ashok Lahiri, Chief Economic Advisor, Ministry of Finance (left) with D. Swarup, Expenditure Secretary coming out after SEBI board meeting in New Delhi on Tuesday. — Photo: Ramesh Sharma

NEW DELHI, JAN. 25. The Securities and Exchange Board of India today said it would ensure that all listed companies have a minimum 25 per cent public holding within the next few years as was promised to Parliament.

To ensure this, SEBI has tightened its norms to restrict promoters having more than 55 per cent stake in their company from acquiring up to 2 per cent of company shares every year without taking its permission, instead of the previous limit of 5 per cent.

25 p.c. public holding

"There was an assurance given to Parliament that every company over time must have at least 25 per cent of capital in the hands of the public. With reference to that, we modified the regulations to be implemented in a phased manner,'' the SEBI Chairman, G. N. Bajpai, said after its board meeting here. He said SEBI had modified the Substantial Acquisition and Takeover norms to ensure that companies, which have public holding of less than 25 per cent, adhere to the norms in a phased manner in 2-3 years.

Companies are now required to make a mandatory open offer to buy 20 per cent shares from the public after they acquire 55 per cent stake in the company.

"Suppose a company goes for an open offer and acquires equity beyond 75 per cent, then it can have difficulty as 25 per cent of the shares will not remain with the public,'' Mr. Bajpai explained.

To ensure that companies adhere to the norms, Mr. Bajpai said the creeping acquisition limit had been capped at 2 per cent a year after promoter's holding crosses 55 per cent in the company. The limit was earlier pegged at 5 per cent for all irrespective of the promoter holding.

"For creeping acquisition after promoters cross 55 per cent holding, we have put a 2 per cent limit now which was earlier 5 per cent, so that companies are not required to go for open offer again and again,'' he said.

Referring to the problems of some of the companies in meeting the SEBI norms, Mr. Bajpai said, "There are companies which have a public holding of less than 25 per cent. They will be given sufficient time to be able to reduce their holding.'' "They should not be compelled to offload their capital immediately,'' he said. The companies would have to increase public holding to 25 per cent "eventually,'' which is the assurance given to Parliament, he said.

Mr. Bajpai expressed concern over the confusion in the market over the definition of "promoters,'' and said, "There was lot of interpretations going around in the market. So it was therefore necessary for us to look at the definition of the promoters and the group of controlling shareholders. It was important we revised the definition.'' On corporate governance, he said SEBI had already notified the amendments in the Clause 49 and the new corporate governance norms would be implemented from April 1, 2005. — PTI

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