The capital market regulator Securities and Exchange Board of India (Sebi) on Thursday said companies planning an initial public offer (IPO) will have to file the shareholding pattern with the exchanges a day prior to the listing. Currently, companies disclose the shareholding pattern only on a quarterly basis. Further, while filing the quarterly shareholding pattern, the disclosure of shares held by custodians, against which depository receipts have been issued (Global Depository Receipts (GDR) and American Depository Receipts (ADR)), should be classified as promoter/promoter group and non promoter.
The board also decided that whenever shareholding structure of an entity increases or decreases by more than 2% of the paid up share capital of the company post a corporate event, the company should file a revised shareholding pattern with the stock exchanges. This should done within 10 days. The decision was taken by the regulator in its board meeting held on August 4, 2010, which is expected to bring more transparency in the share transactions.
Market observers said that the Sebi’s latest decision will help retail investors to identify and judge the nature of institutional investors participating in a primary market offering. At present, companies shareholding structure filed with stock exchanges reveals public shareholders who hold more than 1% of the total number of shares in addition to stake held by promoter and its group entities. Among the public shareholders, mostly it is foreign institutional investors (FII), mutual funds, insurance firms, private equity funds among others who hold more than 1% of the total number of shares.
Normally, in an IPO, retail investors base their investment decision after judging the response of institutional investors towards the issue. However the shareholding structure is available only at the end of the quarter. ?The market will know whether short- term or long-term money is flowing in to the primary market offers,? said a head of a leading institutional broking firm. He added that in most of the Qualified Institutional Placement (QIP), most of the investors participate with the intention of making some quick short term gains.
More importantly, the segregation of promoter and non ? promoter holding under the depository receipts will bridge the loophole where promoters held stakes through depository receipts without coming under the lens of takeover regulations. The move follows after the regulator found that promoters of few companies were holding stake in the company through depository receipts issued overseas, but were never disclosed in the public domain.