SEBI vide its circular dated November 30, 2015 prescribed various methods that may be used by a listed company to comply with the minimum public shareholding (MPS) requirements under Rules 19(2)(b) and 19A of the Securities Contracts (Regulation) Rules, 1957 read with Regulation 38 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. [Our articles on the recent SEBI circulars on the MPS norms can be accessed here and here]
To further facilitate compliance with the MPS norms, SEBI on February 22, 2018 has provided two additional methods to meet the 25% MPS threshold. The new methods are:
a) Open Market Sale – Promoters/promoter group may sell up to 2% of the total paid-up equity share capital in the open market, subject to five times’ average monthly trading volume of the shares of the listed entity. However, a disclosure would have to be made at least one trading day prior to every such proposed sale providing details regarding the intention and purpose of such a sale, information about the promoter(s)/promoter group, total number of shares and percentage of shareholding, duration of the entire divestment process. The company will have to undertake that the promoter(s) and promoter group will not buy any shares in the open market on the dates on which the shares are being sold and the transactions would also be subject to prohibitions on insider trading and other takeover related obligations; and
b) QIP – The company may also make a qualified institutional private placement to bring up the public shareholding to 25%.
It is unclear why this route was prohibited and why sale in secondary markets is still limited. As mentioned in the press release of the SEBI Board Meeting held on December 28th, 2017, “open market will facilitate quicker and cheaper compliance”. Allowing promoters to sell in the transparent and anonymous secondary market to fulfil the MPS norms is a step in the right direction. However, SEBI should consider removing limits on such sale.