JR Varma, former member, Securities and Exchange Board of India (Sebi) says most companies will comply with Sebi’s minimum public float norms that require all private sector listed companies to have atleast 25 percent shareholding and also required promoters to lower their stake to 75 percent.
In an interview to CNBC-TV18, Varma adds that the market regulator can resort to penalizing the companies if they fail to comply with the norms.
“Some of it has already taken including freezing the voting power, preventing new market access and so on. So, I think most companies will comply and few that don't will obviously be the companies that really don't matter,” adds Varma in an interview to CNBC-TV18.
Below is the edited transcript of Varma’s interview to CNBC-TV18.
Q: Nearly 100 companies have so far failed to meet minimum public shareholding norm as the deadline has approached. What more can Securities and Exchange Board of India (SEBI) do to penalize these companies? Except for perhaps banning promoters from paying dividend and raising funds, is there any other things that Sebi can do at all?
A: No, I think SEBI has lot of powers and I also think that over a period of time most of them will comply. I think a lot of companies were under the delusion that at the last minute, the deadline would be extended or relaxed or whatever. Now that it is clear that there is no relaxation, no extension, I think most of these companies will come around and will comply and if they don't, there are lots of penal actions that the regulator can take. Some of which it has already taken including freezing the voting power, preventing new market access and so on. So, I think most companies will comply and few that don't will obviously be the companies that really don't matter.
Q: What did u make of the Securities Appellate Tribunal's (SAT) judgement in the Gillette case? Will this have an impact on other companies as well?
A: No, I think that is a very welcome judgement. The nice thing about the judgement is that it is very categorical. It makes no bones about it. It very categorically says that the company had three years time and that it came at the last minute and said that they had no time, etc.
The judgement clearly says that it cannot condone a situation where the company first adds to its holding and then says that they will bring it down later. If one is already already violating it, then the last thing it can permit is to increase the violation by raising your stake. It has just given short shrift to these arguments. I think that is a very good order. It makes it very clear that the tribunal is not going to tolerate any kind of excuses.
Q: What about the Fresenius Kabi case? Though it is not illegal, do you think spirit of the minimum public shareholding was violated and the regulator should look into loopholes if any?
A: No, I think we should wait for the regulator to look at all the facts and arrive at an order as to what has happened. I am not too concerned about the companies changing their mind, because there are these two options, either you can raise the floor to 25 or you can delist. Over a period of time, depending upon whether the market is going up or down or whatever companies decide, it is for the regulator to look at whether there was anything more devious in what was being done.
Q: Many market participants criticize the delisting norms. Do you think the regulator needs to tweak its norms to avoid any speculative activity once delisting is announced by the company?
A: I think there is need for a balance of power on both sides. We must remember that companies also have a lot of advantages in delisting. We know that companies delay good news and they front-end the bad news so that the stock is depressed. They spread the reports that the prospects are very bad. All of these things happen form the company's side and how do we counter that.
The only counter to that is to have some informed investors who see through this and say that okay we think that the current price is depressed because of the misinformation that is spread by the company and we are willing to buy at a higher price. If they turn out to be wrong, then they will be left holding worthless stock. You cannot have a market where only one person holds all the cards. It is necessary to have competing price discovery in the market.