These updates in The SEBI Substantial Acquisition of Shares and Takeovers Regulations 1997 as amendments for 2009 have become more and more important after the Satyam Expose.
The Satyam episode has been an eyewashing event in Indian Corporate Industry. One more proof of the fact that The Scamsters are way ahead of Regulators and Regulations are always behind the time and Markets.
Also generally in the Bear Markets the companies fall prey to a larger amount of scrutiny and oversight than in Bull Markets. Bear market in general is the time for the regulations to come ahead at par with the Markets.
The first change has been on 28th January regarding Disclosure of Pledged shares.
- Why this is important is that - the promotors of the company generally manage a company because of substantial number of voting rights which give them control or they manage the day to day affairs of the company by virtue of their sharehoding in the company.
- If it's quantum changes because of pledge to (in favour of) lenders or other third parties - as it happened in satyam then the promotors naturally loose control of the company.
- Again the shareholders have every right to know all these important matters well in advance. These are events which are of material importance to all the parties associated with company.
- These events help us assess the management quality, try and tell us whether the affairs of the company are free and fair, whether or not they are misusing the funds of the company, what are the long term prospects of the company, whether promotors have sufficient faith in the business model of the company, whether they are funding their other business by way of these pledged shares, are they trying to increase their shareholding in the company because of low current market prices by way of pledging current shares in the market(eg. orchid pharma & chemical) etc.
Thus these events become important for the shareholders, analysts, regulators, government, even potential suitors i.e. acquirers, press, financial institutions, private equity players etc. all alike.
So now don't forget to see the quarterly pledge related filings by the companies to the stock markets to determine whether the company is an investment choice. Also one part where these regulations lack is that they dont mandate the promotors to disclose the purpose of the pledging of shares. In future i strongly feel this should be made compulsory.
Now within 7 days of pledge the promotors via the company have to disclose the shares pledged.
the necessary condition is if they pledge either
- greater than 25000 shares or 1% of voting rights or share capital whichever is lower.
The changes introduced by SEBI are mentioned below for your reference:
In the Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997 -
(i) after regulation 8, the following regulation shall be inserted, namely:-
“ Disclosure of pledged shares.
8A. (1) A promoter or every person forming part of the promoter group of
any company shall, within seven working days of commencement of
Securities and Exchange Board of India (Substantial Acquisition of Shares
and Takeovers) (Amendment) Regulations, 2009, disclose details of
shares of that company pledged by him, if any, to that company.
(2) A promoter or every person forming part of the promoter group of any
company shall, within 7 working days from the date of creation of pledge
on shares of that company held by him, inform the details of such pledge
of shares to that company.
(3) A promoter or every person forming part of the promoter group of any
company shall, within 7 working days from the date of invocation of
pledge on shares of that company pledged by him, inform the details of
invocation of such pledge to that company.
Explanation: For the purposes of sub-regulations (1), (2) and (3) the term
“promoter” and “promoter group” shall have the same meaning as is
assigned to them under Clause 40A of the Listing Agreement.
(4) The company shall disclose the information received under subregulations
(1), (2) and (3) to all the stock exchanges, on which the shares
of company are listed, within 7 working days of the receipt thereof, if,
during any quarter ending March, June, September and December of any
year,:-
(a) aggregate number of pledged shares of a promoter or every person
forming part of promoter group taken together with shares already
pledged during that quarter by such promoter or persons exceeds
twenty five thousand; or
(b) aggregate of total pledged shares of the promoter or every person
forming part of promoter group alongwith the shares already
pledged during that quarter by such promoter or persons exceeds
one per cent. of total shareholding or voting rights of the company,
whichever is lower.”
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