The Hindu Business Line : Creepy acquisition

Promoters are exempt from making the mandatory public offer to acquire further shares carrying a minimum of 20 per cent voting rights of the company so long as they do not acquire in a financial year more than 5 per cent of the shares carrying voting power.

This thaw is at present available if they are holding 15 per cent or more but not more than 55 per cent of the shares of the company carrying voting rights.

Shareholding threshold

It is proposed to raise the maximum shareholding threshold for promoters wanting to duck the public offer norm to 75 per cent from the existing 55 per cent with the ceiling on annual incremental beefing up remaining at 5 per cent of the aggregate share capital of the company carrying voting rights.

SEBI’s Press Release on the issue is rather cryptic and terse. But market watchers see in it a serious attempt at bolstering the confidence of the market. It is a long shot.

If promoters consolidate their position beyond 55 per cent, the market value of the scrip would obviously go up in view of the additional demand for it and also due to the perception thus fostered that the promoters are leading from the front and not chickening out. But then there can be two views on pampering the promoters. As it is, many of the listed companies in India are effectively family owned companies with DLF and Wipro leading the pack with the promoter family sitting on roughly 80 per cent of the voting power.

It is true that creeping acquisition takes place at the prevailing market price whereas promoters keen on hogging the lion’s share of the enlarged pie post-public issue contrive to corner these shares before going public at a throwaway price vis-À-vis the price at which shares are offered to the public — the tactic invariably adopted by promoters in the run-up to IPO no matter whether their share of the post public issue pie is say going to be an ambitious 80 per cent or a more reasonable 25 per cent.

Less creepy

It may thus be contended that creeping acquisition is less creepy and more transparent than the privatisation, as it were, of a public company, a listed one at that.

While upping one’s stake gradually and transparently is certainly more honourable, the basic question that remains unanswered is whether or not a 75 per cent voting clout virtually makes a public company a private one what with the promoter being able to hustle through special resolutions that require 75 per cent support.

SEBI’s heart may be at the right place — to bolster the sagging market — but unwittingly it is falling into the same trap into which many have fallen in the past — treating the symptoms than the disease. Would SEBI keep on changing the maximum shareholding threshold depending on the prevailing market conditions?

Today the market is in tatters and hence any leg up given to buying may seem appropriate. But tomorrow the market may be in a grip of frenzy warranting steps to cool down the prices lest another bubble bursts. Would SEBI in such an eventuality goad the promoters to bring down their holdings from 75 per cent to what it considers desirable for the nonce?

If the shareholding norms are going to be so fickle that would make SEBI another RBI. A central bank, to be sure, needs to willy-nilly behave like a weathercock but not the market regulator. In other words, it is one thing for the interest rates to be changed frequently but quite another to change the promoter holding norms.

Leeway to promoters

Any policy that uses promoter’s holdings to talk up or talk down the market would have the unintended effect of making promoters the centrepiece of any investment or disinvestment decision as far as the market is concerned whereas ideally the market should be driven by fundamentals alone.

The creeping acquisition leeway given to promoters has always raised eyebrows. It is bound to go up a notch higher now that they are going to be cosseted more.

While it may be too much for a promoter holding 16 per cent of the shares to acquire a further 20 per cent of the shares of the company when all that he has done is to take his stake up from 16 to 17 per cent, it is certainly not in order for SEBI to relax the creeping acquisition norms to an extent where promoters can quell all dissent, marginalise all other shareholders and in short morph a listed company into their own handmaiden, nay fiefdom.

(The author is a Delhi-based chartered accountant. blfeedback@thehindu.co.in)

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