The SEBI Board meeting held in the last week of June made some far reaching announcements. While some were for the current market conditions, others were intended for longer term. Here are four such areas that SEBI addressed.
Special rights shares
Special rights (SR) shares are something that founder promoters have been asking for, especially in the case of high technology and low capital companies. Like the DVR shares of yore, the SR shares will give additional voting rights but can only be issued to the promoter group in the case of high technology companies in IT, AI, biotech etc. The combined net worth of the promoters in this case will have to be less than Rs.500 crore. This has been obviously driven by the recent case of hostile acquisition made by L&T for Mindtree where the promoters could not prevent the takeover. Voting rights of SR shares will be limited to 75% of overall.
Regulating royalty payments
There were two interesting changes here. Firstly, the cut-off for approval by shareholders in case of royalty payment has been moved up from 2% to 5% which is a lot more realistic. Secondly, the regulator has also clarified that the vote of shareholders in such an event will be counted by excluding the interested parties in the deal. That will bring in more transparency.
Tighter pledging norms
This particular activity had come under scrutiny for the value loss that it caused to minority shareholders. SEBI has made two interesting announcements in this regard. Firstly, the definition of pledge is widened to include direct and indirect pledges like liens, reverse lien, restrictive covenants etc so that pledges cannot be hidden behind semantics. Also, any promoter pledge above 20% of share capital or more than 50% of promoter holding must be accompanied by a detailed explanation of the reason and must be put up on the website of the stock exchange. That will usher in better disclosure practices.
Needle falls on mutual funds
Mutual funds have been at the centre of attention for all the wrong reasons so regulation was coming. Now, liquid funds will have to keep 20% of their corpus in cash, bank deposits, G-Secs and treasuries only. Also, mutual funds can make fresh investments only in listed NCDs, listed CPs and listed equities in future. Thirdly, any credit enhancer or structured product will have to be a dedicated product and cannot be mixed with other debt funds. Mutual funds will have to take steps to prevent mis-selling. Lastly, post the Essel Group fiasco equities pledged by promoters must cover at least 4 times (400%) of the value of investment. Surely, these measures will go a long way! ©