Sebi nudge ensures IPO-bound firms come clean on list of promoters

Incidentally, earlier this year in March, merchant bankers were told at a meeting at the National Stock Exchange (NSE) that founders – in the case of new-age companies -- holding more than 10 percent stake in an IPO-bound company, individually or collectively, and those who hold executive positions in the firm, will have to be categorised as promoters.

They were further told that an immediate relative of the promoter with a board seat or a stake of at least 10 percent also needs to be classified as a promoter. This was not the case earlier, as such an entity, if holding a non-executive position on the board, could have been classified as ‘promoter group’ rather than a ‘promoter’.

Also Read: Executive startup founders holding more than 10% stake may be categorised as promoters

“The identification of a promoter has come under the spotlight primarily due to certain issuers who classified themselves as professionally managed companies i.e., without a promoter,” says Abhimanyu Bhattacharya, Partner, Khaitan & Co.

“However, certain individuals held executive positions on the board with a certain level of shareholding (10 percent or more but less than a controlling stake) and were seen to have a fair degree of influence on the operations of the company. This led SEBI and the stock exchanges to review the manner in which promoters were being identified by issuer companies,” he adds.

Sources, however, say that the requirements are part of an “advisory” or an “informal guidance” and are not yet part of the Sebi regulations and hence, at times, companies and bankers take their chances and make the necessary changes only if directed to do so, hence the addendums after filing the DRHPs.

“Currently, there is a case-to-case approach, which is why there's a need for such addendums. But now there is some amount of precedent, so the merchant banking community is also relatively more clear in terms of Sebi’s thinking,” said the head of a leading merchant banking firm, wishing not to be named.

“There have been genuine issues in some cases and the changes were made only after a nudge from the regulator even though we felt that it could have been avoided. A larger discussion on this issue would be welcome and would help all stakeholders – Sebi, bankers, and issuer companies. Also, it would be help if changes can be made to the Sebi regulations to incorporate these requirements,” he added.

Meanwhile, in the case of Emcure Pharmaceuticals, while the DRHP listed Namita Thapar and her father Samit Satish Mehta as part of the promoter group of the company, an addendum filed thereafter classified the duo also as promoter entities and not just part of the promoter group.

Similarly, in the case of Unicommerce eSolutions, the DRHP had listed AceVector (formerly known as Snapdeal) as the promoter of the company but later on filed an addendum to include Snapdeal founder Kunal Bahl and co-founder Rohit Kumar Bansal.

“We are aware of certain cases where stock exchanges have asked issuers to include individuals or entities based on the expanded criteria after filing their DRHPs with SEBI and the stock exchanges. The revised list of promoters has been communicated to the market by the issuers through addendums to their DRHPs. There is an urgent need to review the expanded criteria, particularly from an ease of doing business perspective,” says Bhattacharya.