SEBI tightens rules for pledged shares, mutual funds; key things to know

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Updated: June 27, 2019 6:10:19 PM

Addressing issues around shares encumbered by promoters, the Securities and Exchange Board of India (SEBI) on Thursday enhanced norms for disclosure of pledged shares.

A One Steel And Alloys Pvt Ltd, Raju Mukund Vanarase, Satya Narain Tulsian, Royal Fincomm Pvt Ltd and A One Steels India Pvt Ltd are the five entities facing action, as per Sebi’s separate orders.

Addressing issues around shares encumbered by promoters, the Securities and Exchange Board of India (SEBI) on Thursday enhanced norms for disclosure of pledged shares and made it mandatory for the promoters to disclose reasons for encumbrance when it crosses 50 per cent of shareholding in the company. Similarly, disclosure would be required when it crosses 20 per cent of total share capital in the company. Widening the definition further for encumbered shares, the markets regulator said that any direct, indirect lien on shares will qualify as encumbered share. Under the current takeover code, encumbrance includes a pledge of shares, lien or any such transaction. SEBI chief Ajay Tyagi also said that the company audit panels must be told of any undisclosed encumbrance. SEBI also issued framework on differential voting rights share issue.

The board of market regular also announced new regulations on liquid mutual funds as well. SEBI said that the liquid mutual fund schemes will have to hold at least 20 per cent in liquid assets such as government securities gilts. A cap on sectoral limits of 25 per cent has also been cut to 20 per cent. The markets regulator has started adjudication against some credit rating agencies, Ajay Tyagi also said.

Also read: Cox & Kings shares hit 52-week low after credit rating downgrade

The valuation of debt and money market instruments based on amortisation would now be dispensed with completely and would be based on mark to market basis, SEBI added. The mutual fund schemes would be mandated to invest only in listed NCDs, implemented in a phased manner.

An additional exposure of 15 per cent to housing finance companies (HFCs) was also brought down to 10 per cent in HFCs and 5 per cent in securitised debt based on retail housing loan and affordable housing loan portfolio. SEBI also said that the consolidated debt-equity ratio must be considered for buybacks.

“Widening the scope of “Encumbrance” by including negative lien and NDUs (Non Disposal Undertaking) etc. is a welcome step by SEBI. This would help in tightening norms for disclosure by promoters and will further improve the transparency”, said Pavan Kumar Vijay, Founder, Corporate Professionals, a legal and corporate advisory firm.

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