SEBI mulls 10% public shareholding in post-CIRP cos at relisting
The over 8,700% surge in Ruchi Soya's share price, post its relisting, with the public shareholding at a meagre 0.97%, has drawn the attention of the SEBI. The market regulator, among other options, has proposed to make it mandatory for post-CIRP companies to have at least 10% public shareholding at the time of relisting.
 
Such companies may be provided three years to achieve a minimum public shareholding of 25%, it said. In case of IPOs, in terms of Rule 19(2) (b) of the Securities Contracts (Regulation) Rules, companies are mandated to have at least 10% public shareholding.
 
Another proposal put forward by the Securities and Exchange Board of India (SEBI), in a consultation paper issued on Wednesday, is to reduce the timeline for post-CIRP firms to achieve the public shareholding of 10% to six months.
 
SEBI norms currently say that in case of companies where public shareholding falls below 10% due to the implementation of the resolution plan under the Insolvency and Bankruptcy Code (IBC), then such companies should attain the 10% level within 18 months and 25% within three years from the date of such fall.
 
"Post-CIRP companies may be mandated to achieve at least 10% public shareholding within six months and 25 per cent within 3 years from the date of breach of MPS norm," it said.
 
Another option proposed in the paper is that post-CIRP companies may be mandated to have at least 5% public shareholding at the time of relisting and such companies may be provided 12 months to achieve public shareholding of 10% and further 24 months to achieve public shareholding of 25%.
 
The SEBI, however, said that a concern in the 5% threshold is that it may not be significant to allay concerns. But, the positive side is that a lower threshold, such as 5%, will incentivise companies from staying listed and any higher threshold may push for total delisting.
 
The regulator has sought comments on the proposals by September 18.
 
The SEBI noted that although relaxations are available, it is possible that, pursuant to implementation of the resolution plan, the public shareholding in such companies may drop to abysmally low levels.
 
Citing the instance of Ruchi Soya which was acquired by Patanjali Ayurved through CRIP and relisted in January, the consultation paper said: "In one recent case, it was observed that post-CIRP, the public shareholding has decreased to 0.97%, and showed 8,764% increase in its share price in spite of additional preventive surveillance actions, including reduction in price band and moving the scrip into trade for trade segment."
 
On January 27, the day it was relisted, Ruchi Soya's shares on the BSE closed at Rs 16.90 and in June, it touched a high of 1,507.30 per share.
 
Market experts raised concerns on the incessant rise in prices at a time when the public shareholding is very low. BSE data shows that as of June, the public shareholding stands at 1.03% and the promoter shareholding at 98.97%.
 
Sonam Chandwani, Managing Partner at KS Legal & Associates, said: "Numerous options in relation to post-CIRP companies may be mandated to achieve at least 10 or 5% public shareholding. A major concern with 5% threshold is that it is a miniscule threshold to allay certain concerns, however a lower threshold may incentivise companies from staying listed and any higher threshold may push for total delisting."
 
She noted that the additional disclosure requirements pertaining to pre and post net-worth of the company, description of business strategy, impact on investors, resolution plan details, among others, are steps in the right direction and are likely to enhance transparency of the CIRP and reinstate investor trust and confidence.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    NSE Clearing Revises Bank Guarantee Limit for Trading and Clearing Members
    In a move to tighten security and collaterals in the wake of HDFC Bank failing to honour a fixed deposit (FD) pledged with the bank, the National Stock Exchange (NSE) and its clearing corporation appear to have tightened the rules on bank guarantees. 
     
    NSE Clearing Ltd, formerly known as National Securities Clearing Corp Ltd, has revised member-wise-bank-wise limits and member-wise limits for acceptance of bank guarantee towards collaterals. 
     
    “Members are advised to check their applicable limit before getting their bank guarantees issued,” NSE Clearing said in a circular issued on 18 August 2020.
     
    As per the revised norms, total applicable bank guarantee limits the applicable total limit per clearing member across all the segments or schemes for a professional clearing member with a net worth of Rs1,000 crore or more, will be Rs937.50 crore for primary clearing bank and Rs750 crore for other banks. This is the member-wise, bank-wise category.
     
     
    For member-wise category, the applicable total limit per clearing member across all the segments or schemes, for a professional clearing member with a net worth of Rs1,000 crore or more, will be Rs3,750 crore.
     
     
    As reported by Moneylife earlier, market regulator Securities and Exchange Board of India (SEBI) had been questioning clearing houses about these collaterals. The NSE action, however, is silent on FDs which have turned out to be a Rs100.75 crore hot potato in the case of IndiaNivesh Securities and is subject of a arbitration proceeding between HDFC Bank, Edelweiss Custodial Services and the defunct brokerage firm. 
     
    Given the complexity of this matter and the silence of the Exchange and the regulator, there is a lot of uncertainty whether fixed deposits and the more dubious, ‘funded’ FDs can be encashed easily in case of another mark-to-market requirement. 
     
    The Reserve Bank of India (RBI) has also sought SEBI’s cooperation in conducting a specific reconciliation exercise of the margins in the form of lien-marked fixed deposit receipts, bank guarantees, and ‘unfunded fixed deposits’ or FDRs. 
     
    In early April, IndiaNivesh, a 14-year old brokerage firm voluntarily closed all its businesses, almost overnight after suffering serious losses when stock prices crashed after the first COVID-related lock-down. The exit of IndiaNivesh has left a controversial Rs100 crore hole in the books of Edelweiss Custodial Services, which was its clearing brokerage firm with the trail leading to HDFC bank, which had apparently 'funded' a so-called fixed-deposit shown as margin to the NSE clearing house. (Read: How Serious Is the Issue of Fake Fixed Deposits or Funded Collateral in the Market?)
     
    Typically, banks are allowed to issue BGs (bank guarantees) on behalf of share and stock brokers in favour of stock exchanges towards security deposit and margin requirements as per stock exchange regulations. 
     
    As per a master circular issued by the RBI , banks are required to obtain a minimum margin of 50%, out of which cash margin to be 25%, while issuing such guarantees in both the above cases and to observe usual and necessary safeguards including the exposure ceilings.
     
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    RBI Releases Framework for Umbrella Retail Payments Entities
    The Reserve Bank of India (RBI) on Tuesday came up with a framework for pan-India umbrella entity for retail payments, wherein the central bank has said that an entity must have a minimum paid-up capital of Rs500 crore for setting up an umbrella entity for retail payment.
     
    The RBI notification said that the objective of the framework is to set up pan-India umbrella entity or entities focussing on retail payment systems.
     
    "Such entity shall be a Company incorporated in India under the Companies Act, 2013 and may be a 'for-profit' or a Section 8 Company as may be decided by it," it said.
     
    It said that the umbrella entity shall have a minimum paid-up capital of Rs500 crore. No single promoter or promoter group shall have more than 40% investment in the capital of the umbrella entity.
     
    "The promoters/promoter groups shall upfront demonstrate capital contribution of not less than 10%, i.e., Rs50 crore at the time of making an application for setting up of the umbrella entity," it said, adding that the the balance capital shall be secured at the time of commencement of business or operations.
     
    The promoter shareholding can be diluted to a minimum of 25% after five years of the commencement of business of the umbrella entity and a minimum net worth of Rs300 crore shall be maintained at all times.
     
    RBI said that the umbrella entity shall conform to the norms of corporate governance along with 'fit and proper' criteria for persons to be appointed on its board.
     
    The guidelines said that RBI retains the right to approve the appointment of directors as also to nominate a member on the board of the umbrella entity.
     
    The apex bank has sought applications from the interested parties by the close of business hours on 26 February 2021. The Reserve Bank will endeavour to complete the process within a period of six months, it said.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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