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Sebi amends rules for stake dilution by promoters

Market regulator Sebi on Thursday amended its rules to allow promoters to use rights and bonus issue of shares for dilution of their stake to meet minimum public holding norms.

twitter-logoPTI | August 29, 2012 | Updated 18:08 IST

Market regulator Sebi on Thursday amended its rules to allow promoters to use rights and bonus issue of shares for dilution of their stake to meet minimum public holding norms, and said it would consider any further relaxation in this matter on case by case basis.

The promoters will have to forego their entitlement to shares being issued in such rights and bonus issues, the Securities and Exchange Board of India (Sebi) said in a circular.

These two additional avenues for sale of shares by promoters to meet minimum public holding (25 per cent for private sector companies and 10 per cent for PSU entities) norms were approved by Sebi's board on August 16.

As per the board approval, Sebi has now amended its relevant regulations, the market regulator said.

Sebi already allows promoters to dilute their holdings through newly introduced methods like IPP (Institutional Placement Programme) and Offer for Sale (OFS), as also traditional routes like Follow-on Public Offer (FPO).

The regulator further said that listed entities "desirous of achieving the minimum public shareholding requirement through other means may approach Sebi with appropriate details.

"Further, listed entities desirous of seeking any relaxation from the available methods may approach Sebi with appropriate details," it said.

Sebi said such requests would be considered by it on merit and the regulator would seek to communicate its decision within 30 days from the date of receipt of such requests.

In rights and bonus issues, the promoters are also entitled for issuance of shares, as a result of which they might not be able to dilute their stake.

Therefore, Sebi has decided that the promoters can forego their entitlement of shares in such issues to dilute their stake to meet the minimum public holding norms.

As a result, the shares would be allotted to only public shareholders under such rights and bonus issues. Normally, all existing shareholders have a right to apply for shares, in accordance with their existing holding, in a rights issue.

In case of bonus issue, the companies issue additional shares to all existing shareholders in a pre-decided ratio as per their current holding.

Sebi has asked the promoters of all private sector firms to dilute their stake to the extent that the company has a minimum public holding of 25 per cent by June, 2013.

For the public sector companies, the promoters have been asked to pare their holding to an extent that such entities have a minimum public holding of 10 per cent by August, 2013.

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