Sebi tweaks norms for bankrupt cos, FPOs

Continuing efforts to boost the capital market, Sebi on Wednesday decided to tweak the 25 per cent minimum public shareholding requirement for companies undergoing insolvency process, segregate assets as well as liabilities of mutual funds, and ease norms governing promoter participation in follow-on public offers.

For the mutual fund segment, the watchdog also relaxed the profitability criteria and mandated minimum Rs 100 crore net worth requirement for entities to become sponsors of mutual funds.

The board of Sebi, at its meeting on Wednesday, also cleared amendment regulations pertaining to market intermediaries to avoid duplication of proceedings before the designated authority and the designated member.

Tweaking the public shareholding norms for companies going through insolvency process would ensure revival of the corporate debtor pursuant to resolution plan and provide any listing gains over the next three years to shareholders.

Sebi approved a slew of proposals for mutual fund sector, including segregation and ring-fencing of assets and liabilities of mutual fund schemes.

This is in addition to the existing requirement of segregating bank accounts and securities accounts, Sebi said in a statement.

Omkeshwar Singh, head RankMF at Samco Securities, said the relaxed rules will open gates for new players to be sponsors of mutual funds.

Among others, the regulator decided to provide certain exemptions to alternative investment funds (AIFs) in respect of investment committee members and amended intermediaries norms.

The exemption in AIF rule is "conditional upon capital commitment of at least Rs 70 crore from each investor accompanied by a suitable waiver".

With regard to companies undergoing insolvency and seeking relisting, Sebi said such companies will be mandated to have at least 5 per cent public shareholding at the time of their admission to the stock exchange.

At present, there is no such minimum requirement.

Further, such companies will be provided 12 months to achieve public shareholding of 10 per cent and further 36 months to reach 25 per cent public shareholding level.

Currently, the norms mandate that in case public holding of such company falls below 10 per cent, then the same will be increased to at least 10 per cent within 18 months and 25 per cent within three years.

Also, it has decided to enhance disclosure for such companies.

The regulator also approved a proposal to do away with the applicability of minimum promoters' contribution and the subsequent lock-in requirements for the issuers making a follow-on public offer (FPO) of specified securities.

At present, promoters are mandated to contribute 20 per cent towards FPO.

Besides, in case of any issue of capital to the public, the minimum promoter's contribution needs to be locked in for a period of three years.

Sebi said the relaxation would be available for those companies which are frequently traded on a stock exchange for at least three years.

Besides, these firms should have redressed 95 per cent of investor complaints and should be in compliance with the LODR (Listing Obligations and Disclosure Requirements) Regulations for a period of at least three years.

In respect to MF sponsor eligibility, Sebi said sponsors that are not fulfilling profitability criteria at the time of making application, will also be considered eligible to sponsor a mutual fund.

The move is aimed at facilitating innovation and expansion in the sector.

This is subject to having a net-worth of not less than Rs 100 crore for the purpose of contribution towards the net-worth of the Asset Management Company (AMC).

It further said networth of the AMC has to be maintained till the time it makes profit for five consecutive years.

The board cleared the amendments to norms governing intermediaries in order to avoid the duplication of proceedings before the designated authority and the designated member.

Under the amended rules, designated member will have to remit the matter to the designated authority, for reasons to be recorded in writing, to enquire afresh or to further enquire and resubmit the report.

The designated member may consider granting an opportunity of personal hearing in a case where either the designated authority has recommended cancellation of intermediary registration or the designated member.

The personal hearing can be granted if the designated member is of the prima facie view that the matter is a fit case for cancellation of registration of intermediary.

Also, the board has decided to repeal norms pertaining to central database as the rules have outlived their utility.

Photograph: Shailesh Andrade/Reuters