The Hindu Business Line : Shareholders seek remedy to 'trading' anomalies while restructuring

NATIONAL Investors Foundation (NIF) has drawn the securities regulator's attention to what it feels is an "unfair" market practice - delay in listing of newly-issued shares after corporate restructuring.

A note from NIF to SEBI's secondary markets division refers to the gap between the termination of trading in shares of the transferor company and allotment of shares of the transferee company to shareholders of the former.

Such delays, which may easily be anywhere between four and ten weeks, occur in the case of most mergers and acquisitions, the foundation has pointed out.

As things stand, shareholders of the transferor company receive shares of the transferee company even as trading in the shares of the former is discontinued.

NIF has particularly referred to such M&A deals involving Vardhaman Spinning and Mahavir Spinning, Burroughs Welcome and Glaxo, and JVSL and Jindal Iron & Steel.

"The process is quite lengthy. In fact, it makes life extremely difficult for the shareholder fraternity. For them, it is a tedious and costly proposition," Mr Sudip Bandyopadhyay, Trustee, NIF, told Business Line.

"This practice results in unfair discrimination in favour of the shareholders of the transferee company as they are free to trade in the interim, whereas the shareholders of the transferor company are in no position to take any steps in the absence of the shares of the transferee company, being available with them," the NIF note has pointed out.

A certain mechanism should, therefore, be available to enable the transferor company's shareholders sell their holdings, it has further maintained.

Listing agreement updates suggested

NIF, which claims to have taken "the legal position, the market realities and the logistics" into consideration, has further underscored the need to add teeth to the relevant clauses of listing agreement.

It has urged SEBI to consider the following: Stock exchanges should stop trading in shares of both the transferor and the transferee companies in the event of M&As.

Trading should be resumed in the transferee company's shares only after a reasonable period by when all shareholders of the transferor company have received their quotas.

Trading in the transferor company's shares, in a manner reflecting the approved swap ratio, should be allowed - in spite of the specific shares of the transferee company not being available.

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Shareholders seek remedy to 'trading' anomalies while restructuring