3-yr disclosure must for promoter share transfer: Sebi

Promoters of a listed company need to have made their shareholding disclosures at least three years before any transfer of shares between themselves without triggering an open offer for public investors, Sebi has said.

The capital markets regulator has said that disclosure as promoters in the shareholding pattern filing is necessary for at least three years to get the exemption from open offer, even if the company has been listed for a shorter period of time.

If the shareholding of any entity hits 25 per cent threshold limit in a listed company, it is required to make an open offer for an additional 26 per cent shares from the public shareholders of the company.

However, the open offer is not triggered if the threshold is hit because of transfer of shares between two promoters, who have been listed as promoter entities in the company's shareholding pattern filings for at least three years, besides some other conditions, Sebi has said.

The observations have been made by Sebi in an 'interpretive letter' sought by a company, the Commercial Engineers and Body Builders Company Ltd been listed on the BSE and the NSE since October 18, 2010.

As the company has been listed for less than three years, it had sought an "informal guidance" from Sebi about whether one of its promoters, Ajay Gupta, can transfer shares to another promoter and his father-in-law Kailash Gupta without any open offer requirements.

All the promoters together hold 55.81 per cent stake in the company, out of which Ajay Gupta has 20.53 per cent and Kailash Gupta has 23.02 per cent holding.

In its application to Sebi, the company said that Ajay Gupta intends to transfer shares constituting 17.61 per cent stake to Kailash Gupta.

The company further said it believes that the proposed transfer of shares would qualify for exemption from open offer requirements, as their shareholding pattern as promoters could be disclosed only for two years because of the company getting listed only in October 2010.

"However, both have been shareholders for a period of more than three years as on October 1, 2012,"

the company claimed.

"Since the company got listed in October 2010, it was impossible for the company to make such a disclosure for a period prior to October 2010 pursuant to the listing agreement or under the Takeover Regulations 2011.

"However, we submit that both the transferor and transferee have been holding shares as promoters of the company for more than three years. Kailash Gupta is the promoter/shareholder of the company since October 3, 2005 and Ajay Gupta is the promoter/shareholder of the company since December 23, 2006," it said.

After studying the company's arguments, Sebi said the relevant regulations clearly state that the promoters can transfer shares amongst themselves only if three conditions are fulfilled, the first being the persons named as promoters in the shareholding pattern filed by the target company in terms of the listing agreement for a continuous period of three years prior to the proposed acquisition.

"Since the company was listed in October 2010 only, the shareholding pattern in terms of the listing agreement is available only for two years. Thus, prima facie the promoters do not qualify for the inter-se transfer since they are not complying with one of the pre- requisites (mentioned as the first condition)," Sebi said.

The regulator, however, clarified that its position is based on the information furnished by the company in reference to the present case and different facts or conditions might lead to a different result.