Making it easier for corporates to meet minimum public shareholding requirements, Securities and Exchange Board of India on Wednesday amended its rules to allow promoters to dilute their stakes through rights and bonus issue of shares. In a circular, the market regulator said the promoters will have to forego their entitlement to shares being issued in such rights and bonus issues. A decision regarding selling of shares through rights and bonus issues of shares to achieve the minimum public holding level of 25% for private companies and 10% for public sector undertakings was approved by SEBI’s board on August 16.
SEBI’s latest move follows a series of recent market friendly initiatives aimed at bringing much-needed reforms in the primary markets for the benefit of retail investors. Currently, SEBI already allows promoters to dilute their stakes through methods like institutional placement programme and offer for sale besides the existing methods of follow-on public offer. Further, the regulator said that listed entities desirous of achieving the minimum public shareholding requirement through other means may approach SEBI with appropriate details.
SEBI said such requests would be considered by it on merit and the regulator would seek to communicate its decision within 30 days from the date of receipt of such requests.
In rights and bonus issues, the promoters are also entitled for issuance of shares as a result of which they might not be able to dilute their stake. SEBI has now decided that the promoters can forego their entitlement of shares in such issues to dilute their stake to meet the minimum public holding norms. As a result, the shares would be allotted to only public shareholders under such rights and bonus issues. Normally all existing shareholders have a right to apply for shares in accordance with their existing holding in a rights issue.
SEBI has asked the promoters of all private sector companies to dilute their stake so as to meet the minimum public holding norm of 25% by June 2013.