Post-IBC companies: SEBI mandates 5% public shareholding for relisting

Alarmed by the rise in the share price of Ruchi Soya, which was relisted on the bourses after the Corporate Insolvency Resolution Process (CIRP), SEBI has said that such companies that relist will require 5 per cent public shareholding before their readmission to stock exchanges.

Currently, companies are given 18 months’ time to bring public holding to 10 per cent and 36 months for 25 per cent.

Distorting fair price

Promoters held 99 per cent stake in Ruchi Soya at the time of listing that saw its stock price rise from just ₹17 to around ₹1,000. There is nothing illegal in this since the new promoters had paid more than ₹4,000 crore to acquire the 99 per cent stake under the CIRP.

But on the stock exchanges, lack of public float could lead to manipulation and this could hamper fair price discovery.

Apart from mandatory 5 per cent pre-listing public holding for CIRP companies, SEBI said these companies will have 12 months to achieve public shareholding of 10 per cent instead of 18 months earlier and 36 months for 25 per cent.

“The 5 per cent public shareholding pre-listing is achievable as companies can take the help of underwriters. The additional disclosure norms that SEBI has specified for such companies will instil more confidence among investors,” said Sonam Chandwani, Managing Partner, KS Legal & Associates.

Additional disclosures

SEBI has said companies relisting after CIRP should make disclosures such as resolution plan including details of assets post-CIRP, securities continuing to be imposed on the companies’ assets and other material liabilities and proposed steps to be taken by the incoming investor/acquirer for achieving the minimum public shareholding (MPS). SEBI has done away with the minimum promoters’ contribution and the subsequent lock-in requirements for a follow-on public offer (FPO). This is subject to the equity shares of the issuer being frequently traded on a stock exchange for at least three years; the issuer being in compliance with the SEBI listing norms; and having redressed at least 95 per cent of the complaints received from the investors.

“FPO is another tool to raise funds and relaxation in the current crisis will give relief,” Chandawani said.

Further, SEBI has approved modification to the structure of fees payable by independent advisors and has asked them to ensure that the total cost borne towards fees remains the same. On alternative investment funds, SEBI provides certain exemptions conditional upon capital commitment of at least ₹70 crore from each investor accompanied by a suitable waiver.

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