Supplemental Shareholding Disclosure Norms

In its board meeting held on August 4, 2010, SEBI introduced three changes to its norms requiring disclosure of shareholding patterns of listed companies.

1. Listing: The first change relates to companies undertaking an IPO. The current regime requires disclosure of shareholding pattern in the offer document and thereafter (after listing) on a quarterly basis with the stock exchanges under the listing agreement. The new norms require companies to file shareholding pattern that exists one day prior to the date of listing, which must be available to stock exchanges before commencement of trading. This would ensure that information regarding the allocation of shares in the IPO is available to the investors prior to trading in the shares.

2. Corporate Actions: Any change in excess of 2% of the paid up shares capital of the company arising out of a corporate event should be disclosed within 10 days of such change. This will ensure the availability of updated information to investors following corporate events such as mergers, corporate restructuring or even rights issues (where all investors do not take up their entitlements).

3. Depository Receipts: Companies that have issued depository receipts (ADRs/GDRs) must now classify in their quarterly shareholding pattern the shares held by custodians as either ‘promoter/promoter group’ and ‘non-promoter’. This is perhaps the most significant in this round of changes. Since companies issue shares to the custodian (whose name is entered in their register of members), the identity of holders of the actual depository receipts is opaque to the issuing companies. Therefore, in their shareholding patterns, companies provide a composite disclosure of the total number of shares held through depository receipts, without providing any break-down of the receipt holders. However, this opacity has the potential of misuse because it has often been alleged that promoters of some Indian companies have been holding depository receipts (in addition to underlying shares) thereby providing a distorted picture of the companies’ shareholding pattern to its investors. The new requirement will make such shareholding transparent, and impose the onus on companies to prod beyond the custodian to determine the identity of depository receipt holders. This is yet another effort to curb the abuse of the ADR/GDR mechanism, with the previous instance relating to an amendment to the Takeover Regulation that imposed restrictions on ADRs/GDRs from exemptions under the those Regulations.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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