With PEs and institutions in control, difficult to identify promoter group
In a move with implications for many corporate houses, market regulator SEBI proposes to shift focus from promoters to controlling shareholders in a company.
The concept of promoter is used in a number of regulations of SEBI and other regulatory authorities. Further, the identification of promoters is also relevant from an enforcement perspective.
“By virtue of being called promoters, such persons may have influence over the listed entity disproportionate to their economic interest, which may not be in the interests of all stakeholders,” SEBI said in a discussion paper.
A number of businesses, including new age and tech companies, are non-family owned and do not have a distinctly identifiable promoter group. Also, traditional and family-run companies with identified promoters are now increasingly open to M&A opportunities and exits instead of maintaining a “once a promoter, always a promoter” status.
Amit Tandon, promoter, IiAS, a proxy advisory firm, said, “We are heading for a period where there will be companies without a promoter. These will be professionally managed and institutionally owned. So, we need to accept this reality and begin to move away from having promoters at the centre of regulations.
“Having said so, this will raise questions regarding how do you define control — someone who gets to appoint the CEO and the CFO or nominate a majority of the board or on the basis of an ownership threshold or in some other way.”
SEBI may do away with the concept of classifying any entity with 20 per cent or more of the equity share capital as ‘promoter group’.
Experts say this rule could lead to changes in promoter group constitution of several large corporate houses and many investment holding companies may go out of the promoter category.
“We will have to wait and watch how this rule impacts the reclassification of promoter groups in large listed companies,” said Shriram Subramanian, founder, InGovern, a proxy advisor.
SEBI has also reduced the minimum lock-in period of 20 per cent stake from three years to one year after an initial public offer. A 20 per cent lock-in of promoter shareholding for three years was considered necessary to ensure continuous ‘skin in the game’ by such promoters.
“Nowadays, companies going public are well established with mature businesses, have existing institutional investors like private equity firms, alternate investment funds etc. and their promoters have demonstrated ‘skin in the game’ for several years before proposing listing,” SEBI said.
IPO prospectus itself could become less bulky as SEBI proposes to cut down on disclosures relating to financials of group companies linked to the one being listed. Further, SEBI plans to do away with the norm of mentioning specific corporate bodies as part of the promoter group.
Experts say this too can lead to some changes in the classification of promoter group entities in leading corporate houses.
“SEBI proposal could rationalise the list of promoter group entities as the issuer will not need to check for aggregate holdings of an identified set of shareholders in other entities,” said Yash Ashar, Partner & Head – Capital Markets, Cyril Amarchand Mangaldas.