The Securities and Exchange Board of India (SEBI) has begun penalizing public listed companies that failed to meet the 3 June deadline for putting a minimum of 25% of their equity shares in public hands. Statistics from 4 June show that 105 companies have failed to comply with the regulator’s new public shareholding norms.
The securities regulator has responded by imposing a range of sanctions on non-compliant companies. It has prohibited the promoters, promoter groups and directors of such companies from buying, selling or otherwise dealing in the securities of their companies. It has also ordered the freezing of promoters’ and promoter groups’ voting rights and corporate benefits. Furthermore, the promoters and directors of non-compliant companies have been restrained from holding new positions as a director of any listed company until they comply with the public shareholding norms.
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Companies affected by the penalties include Essar Ports, Hindustan Breweries & Bottling, Plethico Pharmaceuticals, Ras Resorts & Apart Hotels, Steelco Gujarat, Tata Teleservices and Videocon Industries.
SEBI says it may take further action on a case-by-case basis against companies that fail to comply. However, the Associated Chambers of Commerce of India (Assocham) has called for leniency. “While it is true that it has been three years since SEBI had asked listed firms to take firm steps to increase public holding, it must also be realized that selling stocks in the marketplace is a function of sentiments or else the promoters would be compelled to offload equity at a distressed price,” Assocham’s secretary general, DS Rawat, said in a statement. “This is particularly true about the small and mid-cap companies.”
Nevertheless, the new rules have sparked a race for compliance. Adani Ports and Special Economic Zone, one of the 105 non-compliant companies named, issued a US$180 million institutional private placement of equity shares on 5 June in order to make itself compliant. This diluted the promoter stake, taking the public holding in Adani Ports just over the 25% threshold to 25.83%.
Jones Day partners Manoj Bhargava and Colleen Laduzinski and associates Nikhil Naredi, Kevin Khan and Brandon Morris advised a syndicate of DSP Merrill Lynch, Morgan Stanley, Goldman Sachs, Standard Chartered, SBI Capital Markets, Axis Capital, Citi, Deutsche Equities, IDFC and Macquarie Capital on the deal.
Amarchand Mangaldas, led by partners Yash Ashar and Gaurav Gupte, acted as counsel to Adani Ports, while Khaitan & Co partner Nikhilesh Panchal and executive director Sudhir Bassi were counsel to the placement agents.
In another quick-fire deal to comply with the new public shareholding norms, Oracle Global (Mauritius) sold 4.4 million equity shares in Oracle Financial Services Software (India) at a price of ₹2,275 (US$37.75) per share. The deal, which was valued at around ₹1 billion, reduces the Mauritian company’s stake in Oracle Financial Services Software (India) to 75%. Kochhar & Co, led by partner Harry Chawla and associate Akshit Kapoor, advised Oracle Global (Mauritius) on the sale. Partner Yash Asher and principal associates Kranti Mohan and Abhimanyu Bhattacharya at Amarchand Mangaldas in Mumbai represented the brokers Morgan Stanley India and Deutsche Equities India on the sale.
Latham & Watkins in Singapore fielded a team including partner Rajiv Gupta and foreign legal consultant Scott Calver to represent the brokers.
In some cases, more extreme measures have been taken. Indian IT, consulting and outsourcing group Wipro, for example, has split itself into two companies to comply with the new public shareholding rules.
The company has demerged its non-IT divisions, including consumer care, lighting, infrastructure engineering and medical diagnostic product divisions, into a separate promoter-controlled entity, leaving Wipro as a pure IT company.
Amarchand Mangaldas led by Mumbai-based managing partner Cyril Shroff along with Bangalore partners Arjun Lall and Nivedita Rao advised Wipro on the demerger.
Wilson Sonsini Goodrich & Rosati acted as US counsel to the investment banker – JM Financial Institutional Securities – while SPJ Legal was the legal counsel in court.
The demerger has been effective since 31 March. The American depositary receipt issuance is expected to be complete on 7 June.
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