A welcome move

Updated: Jan 26 2005, 05:30am hrs
The long pending demand of investors to restrict the company promoters freedom has now been fulfilled by Sebi. In the erstwhile regime, the promoter would acquire 75% through creeping acquisition, followed up by a public offer for the balance rather than adopting the delisting route. This would result in the public shareholding dropping below the 25% mark and the company would continue to be listed.

In order to do away with this anomaly, Sebi has ensured that once the promoters equity holding reaches the 55% mark, a public offer is necessary. Further, if a promoter wants to acquire beyond 75% equity, delisting would be mandatory. Hence the takeover code would not be attracted for the purpose of delisting.

While the amendment is investor friendly, implementation is going to be painful for corporate India. An important amendment of this nature must be operational on a prospective basis, thereby allowing sufficient time for partners to work out or amend strategies on deals that are in the pipeline. Therefore, asking the promoters to offload shares in excess of 55% is not practical in the one-year time frame set out by Sebi.

In the past, Sebi has issued amendments which have left a vacuum in law for as long as one year. This has happened in the case of amendments on unlisted bonds and sub-brokers regulations. It must be pointed out that although investor interest was the guiding spirit behind the amendments, it caused a lot of hardship to the stock market players.

The writer is managing director, Asit C Mehta Investment Intermediate Limited