SEBI’s new norm for reclssifying Promoters as Public Shareholders

The Securities and Exchange Board of India – SEBI  Wednesday  proposed
new rules for reclassification of promoters who want to become public
shareholders. As per the draft paper, an entity belonging to promoter
or promoter group of listed companies may re-classify its shareholding
to public category through an ‘Open Offer’, ‘Separation Agreement’ and
in cases when the promoter group holds less than five percent shares
in the company.

The market regulator has clarified that post reclassification, all
shareholding agreement will cease to exist and all past agreements
should be made null and void. The outgoing entities would not hold any
key management position in the company and other group firms. They
would not exercise, directly or indirectly, any control over the
affairs of the company or any of the group firm.

At present, there is no specific criteria for such re-classification
but SEBI feels that such norms are required to lend objectivity to the
process of reclassification of promoters of listed companies. The new
norms may have a significant impact on the way some merger and
acquisition deals are structured, as also in cases involving corporate
restructuring that take place due to disputes among members of
business families or after settlements between rival corporates. SEBI
has sought public comments on this discussion paper till 16th January,
2015.