Securities and Exchange Board of India (SEBI) has now allowed more avenues for promoters to dilute their stake to meet the minimum public shareholding norm. According to the market regulator, promoters now consider offloading their stake through employee stock option (ESOP) or transfer of shares to an Exchange Traded Fund.

Under the rule, companies are required to have a minimum public shareholding (MPS) of at least 25 per cent within three years of listing.

Now promoters can increase public holding, pursuant to exercise of options and allotment of shares under an ESOP scheme, subject to a maximum of 2 per cent of the paid-up equity share capital of the listed entity, SEBI said. However, the ESOP scheme should be in compliance with SEBI regulations and the promoter group should not be allotted any shares, it clarified.

Transfer of shares

Besides, shares held by promoter(s)/ promoter group can also be transferred to an ETF managed by a SEBI-registered mutual fund, subject to a maximum of 5 per cent of the paid-up equity share capital of the listed entity, it further said.

The listed entity, however, should inform the exchanges at least one trading day prior to such proposed transfer, it said. Further, the intention of the promoter(s) /promoter group to transfer shares and the purpose of such transfer and the details of promoter stake should also be informed.

“The listed entity should also give an undertaking to the recognised stock exchange(s) obtained from the persons belonging to the promoter and promoter group that they shall not subscribe to the units of such ETF to which shares have been transferred by promoter(s)/ promoter group entities for the purpose of MPS compliance,” SEBI further said.

Offloading stake

Currently, promoters can dilute their stake through public issue, offer-for-sale (through primary as well as secondary market), rights and bonus issues to public shareholders, QIP route and offloading 2 per cent via open market.

With regard to existing rule of promoters selling up to 2 per cent stake in the open market and promoters offloading up to a maximum of 5 per cent stake during a financial year, subject to certain conditions, SEBI said promoters can use either of the mechanism to comply with MPS requirements, but not both.

SEBI has asked stock exchanges to monitor the methods adopted by listed entities to increase their public holding and comply with MPS requirement and any non-compliance observed by bourse would be reported to the regulator on a quarterly basis.

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