In its last board meeting before the Union Budget, market regulator SEBI cleared some crucial regulations for companies that wish to re-list themselves after undergoing the Corporate Insolvency Resolution Process or CIRP.
SEBI said that the companies wanting to re-list after coming out of CIRP will have to mandatorily achieve Minimum Public Shareholding (MPS) of 5 percent at the time of re-listing on the exchanges. Such companies will get a period of 12 months to achieve MPS of 10 percent and 3 years to achieve MPS of 25 percent.
The move will ensure sufficient float in a listed entity and hence reduce any volatility which could happen otherwise due to the low float in the market. An adequate amount of float may also restrict any sort of price manipulation.
SEBI in its consultation paper floated in August had suggested three options for companies undergoing CIRP to achieve a minimum public share of 25 percent.
Low public shareholding raises multiple concerns like the failure of the fair discovery of price, need for increased surveillance measures. The low float also prohibits healthy participation in trading of such companies majorly due to issues related to demand and supply gap of shares.
SEBI in its consultation paper pointed out at one such company where it was observed that post-CIRP the public shareholding had decreased to 0.97 percent and showed an 8764 percent increase in its share price despite additional preventive surveillance actions including a reduction in price band and moving the scrip into the trade for trade segment.
As of now, only 6 companies post-CIRP have been listed on the National Stock Exchange (NSE).
Companies wanting to re-list on exchanges post-CIRP will have to disclose important details like pre and post CIRP net worth, detailed pre and post CIRP shareholding pattern assuming 100 percent.
Conversion, details of funds infused, creditors paid-off. Also, details about any additional liability on the incoming investors due to the transaction/source of funding will have to be made.
SEBI has also made some crucial amendments to its ICDR Regulations for Follow-on Public Offer (FPO). SEBI’s board also approved the proposal to do away with the applicability of Minimum Promoters’ Contribution or MPC and the subsequent lock-in requirements for the issuers making a Follow-on Public Offer (FPO). The relaxations will be subject to the company’s equity shares being frequently traded on the exchanges for the last three years, also the company has to be in compliance with listing and disclosure rules for three years and has redressed 95 percent of investor complaints. Currently, promoters are mandated to contribute 20 percent towards an FPO.
The relaxation on exemption of Minimum Promoter Contribution will be subject to the equity shares of the issuer being frequently traded on a stock exchange for a period of at least three years, the issuer being in compliance with the SEBI LODR regulations for a period of at least three years and the issuer having redressed at least 95 percent of the complaints received from the investors.The exemption will help if non-promoter entities want to dilute their stake in the company through an FPO with the promoter entity wanting to keep its stake content.