In a far-reaching move, the Securities and Exchange Board of India on Tuesday sought to change the universe of securities laws and regulations, hinging on the critical definition of minimum public shareholding in listed companies at 25 per cent.

Companies that failed to comply with the proposed revised public shareholding norms would have no option but to delist, Sebi said.

Changing the rules of the game

Financial institutions, banks, FIIs and mutual funds kept out of definition of promoters Promoters can use the creeping acquisition route to raise their stakes only up to 51 per cent; Required to make open offers if shareholding increases beyond 51% Even open offers have to comply with 25% public shareholding norm Acquirers in open offer that violate this norm will have to make good the deficit if they wish to keep the company listed Acquirers will have to either issue new shares or sell from their existing shareholding to maintain public shareholding Companies that do not wish to comply with revised norms will have to delist

In the proposed amendments to Sebi's takeover code, the regulator has said promoters holding more than 51 per cent of the paid-up equity of a company cannot take the creeping acquisition route to raise their stakes.

Earlier, Sebi had allowed promoters holding up to 75 per cent of the equity to acquire an additional 5 per cent of the equity from the markets through creeping acquisition.

This change in the creeping acquisition clause, as also for open offers and delisting activity, is subject to a caveat that companies maintain the minimum public shareholding at the level specified in the listing agreement with stock exchanges, if they wish to remain listed.

Sebi Chairman G N Bajpai had told Business Standard on Monday that the minimum public shareholding would be set at 25 per cent. Today's guidelines hint at this in a roundabout way.

The only clear indication is in the clause for open required in cases of change in control.

Today's guidelines list out a set of alternatives where an acquirer already has more than 55 per cent of the equity in the target company and is under obligation to make a public offer for another 20 per cent, which will bring the public shareholding to less than 25 per cent.

Where such offer results in the public shareholding being reduced to a level below the limit specified, the acquirer shall acquire only such number of shares as to maintain minimum public shareholding if the takeover is subject to an agreement.

But where the acquisition is through "a mode other than agreement", the acquirer is required to raise the level of public shareholding to the levels specified for continuous listing within a period of six months from the date of closure of the public offer.

This means that after making the open offer that results in the public shareholding falling below 25 per cent the acquirer has to take steps to raise the latter to the minimum specified level.

The regulations say the acquirer may issue new shares or disinvest through an offer for sale "such number of shares held by him so as to satisfy the listing requirements or sell his holdings in the secondary market in a transparent manner".

In cases of indirect acquisition of control--applying the chain rule of change in management of parent companies--if the public shareholding falls below the specified level the acquirer shall either make an offer to buy the outstanding shares remaining with the shareholders within a period of six months or undertake to raise the level of public shareholding to the minimum level by issue of new shares or divestment or secondary market sales.

Sebi has defined public shareholding as shares held by persons other than the promoters.

This will include the holdings of financial institutions, scheduled commercial banks, foreign institutional investors and mutual funds.

In the case of open offers to acquire control of a company, the revised Sebi norms require that an acquirer who seeks to acquire shares or voting rights which will reduce the public shareholding to below 25 per cent "the public offer shall be for such percentage of voting capital that the acquisition does not result in the public shareholding falling below 25 per cent.

Today's proposed amendment attempts to define promoters, a concept that was first set out in a Securities Appellate Tribunal ruling in the Gujarat Ambuja-ACC case.

Sebi has now defined promoter as any person or persons who are directly or indirectly in control of the company or any person or persons named as "promoters" in the offer document or in the shareholding pattern disclosed by the company to the exchanges.