We need better corporate governance in India Inc, with the board and management held to account. Hence the reduced regulatory relevance of the promoter concept. About time India joined the modern world.
Capital markets regulator Sebi has put out a consultation paper to review, revise and bring up-to-date the regulatory framework of ‘promoter’, ‘promoter group’ and ‘group companies’. The extant rules require that the minimum promoters’ contribution of 20% is locked in for a period of three years from the onset date of commercial operations or allotment in the initial public offering (IPO), whichever is later. The proposed norms seek to reduce the lock-in period to one year from the IPO allotment date and, further, to exempt from lock-in requirements after six months, promoters’ holding in excess of the minimum stake, one year from now. The modernisation is sensible.
The rule for extended lock-in is from the days when promoters raised public capital by way of IPOs for greenfield projects. But, these days, IPOs do not finance greenfield projects and the rules call for a monitoring agency for IPOs in excess of ₹100 crore, to exercise due oversight over the funds mobilised. The paper notes that the investor landscape in India is changing, fast maturing and, unlike in the past, the concentration of ownership and controlling rights ‘do not vest completely’ with the promoters or the promoter group. There has been a significant increase in the number of private equity and institutional investors.
The aggregate shareholding of promoters in the top 500 listed companies in terms of market value peaked at 58% in 2009, and has shown a downward trend since; the figure was 50% in 2018. And, the shareholding of institutional investors had risen to 34% in 2018. We need better corporate governance in India Inc, with the board and management held to account. Hence the reduced regulatory relevance of the promoter concept. About time India joined the modern world.