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Takeover and Listing norms to be changed
An expert panel has asked the markets regulator to hike the minimum bid for corporate takeovers from 15 percent to 25 percent. The Takeover Regulations Advisory Committee , headed by noted tax and corporate law expert C. Achuthan, in their report submitted to Securities and Exchange Board of India (SEBI).
has recommended sweeping changes in the Takeover Code.
The regulator has given time till Aug 31 for stakeholders to send their comments and suggestions on the new proposals.
The suggestions made by the committee - set up in September 2009 - sought to completely re-write the existing law governing substantial acquisition of shares and takeovers of companies, including hostile bids for control.
"The committee has recommended that creeping acquisition be permitted only to acquirers who hold over 25 percent of the voting capital, subject to aggregate post-acquisition shareholding not exceeding the maximum permissible non-public shareholding," the report said.
Under the existing norms, there was a tendency among the investor community to keep their holding a tad below 15 percent for acquiring strategic stake in a target company so as not to attract the mandatory open offer requirement.
Listing norms
In June the government made it mandatory for listed companies to raise public shareholding to 25 per cent, with at least 5 per cent dilution a year. In keeping with the Budgetary promise, the Finance Ministry amended the relevant regulations to the effect that "the minimum threshold level of public holding will be 25 per cent for all listed companies"
Accordingly, all listed entities would have to dilute at least 5 per cent additional equity annually till they reach the threshold limit of 25 per cent. And fulfilment of this condition would be must to remain listed
The announcement further said that all listed companies will be required to maintain at least 25 per cent public shareholding for all times to come.
"If the public shareholding in a listed company falls below 25 per cent at any time, such companies shall bring the public shareholding to 25 per cent within a maximum period of 12 months from the date of such fall," it added.
For a company seeking listing, it would have to dilute 25 per cent in one go in case the issue size is just up to Rs 40 billion . However, those already in the process of going public and have filed draft prospectus could disinvest stipulated 10 per cent and later meet the condition notified.
Unlike the current situation where some firms are granted special privileges, the amended norms would have to be followed by all firms.
Impact
In the long term, the new listing norms will benefit the capital market. Uniform listing requirements for all companies, including state-owned ones, could trigger a lot of activity in the primary market. Last fiscal, the government aimed to raise Rs250 billion through disinvestment, a record for a single year. In the current fiscal, the Union Budget estimated that Rs400 billion would be raised through disinvestment.
This move would have a positive impact on the secondary market as well, as it would eventually go on to increase the free float, which would give the market depth and liquidity.
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