The SEBI board today approved significant changes to its Issue of Capital and Disclosure Requirements regulations.
The market will now look out for when these changes are implemented since the transactions can be at different stages – the filing may have been completed, SEBI may have given its views, or the issue may be about to be launched, Sandip Bhagat, founding partner at S&R Associates told BloombergQuint.
While the detailed regulations will be notified by the market regulator shortly, the key ones disclosed by SEBI include:
- In case of public or rights issues, financial disclosures will need to be made for last three years as opposed to the current requirement of five years.
- Restated and audited financial disclosures in the offer document will need to be made on a consolidated basis only. Currently, issuers need to make disclosures on a standalone and consolidated basis.
SEBI has taken the right approach; internationally too, disclosures are made for the last three years, Bhagat said. Besides, it’s not as though the standalone financials won’t be available as issuers will need to disclose those on their website, he added.
- The shareholding threshold for identifying promoter group has been revised to 20 percent from 10 percent earlier.
“It makes the process easier with regards to who gets identified as a promoter group and who you have get confirmations etc from, and I don’t think you’re losing out on anything by changing the threshold to identify the promoter group,” Bhagat said.
- In case the promoter is a “body corporate”, any body corporate in which a group of individuals/companies/their combination hold 20 percent or more, which holds 20 percent or more in the issuer, can be classified as a promoter group only if they are acting in concert.
Manan Lahoty, capital markets partner at Luthra & Luthra explained the change: Let’s say ‘X’ and ‘Y’ hold 21 percent and one percent in issuer company ‘ABC’ respectively. ‘X’ also holds 20 percent in ‘DEF’. The way the definition currently reads, ‘DEF’ ended up as promoter group of issuer company ‘ABC’- 'by the virtue of 'X's' shareholding. The amendment now says that 'DEF’ will qualify as promoter group only if X and Y are acting in concert.
Disclosures Of Group Companies
Group companies’ definition has been made more specific by clarifying that group companies will include companies (other than promoters or subsidiaries) with which there were related party transactions in the last three years.
SEBI has made two changes here, Lahoty pointed out. One, the test will no longer be applicable to subsidiaries. This makes sense because anyway the subsidiaries’ accounts are getting consolidated. Two, the test of related party transaction will go back to three years and not five years as is currently prescribed.
Watch the full conversation here: