Markets regulator Sebi on Tuesday began the consultation process to provide an exit option to dissenting shareholders in case of changes to the objectives of listed firms for which they had raised money from public.
The move comes after the board of Securities and Exchange Board of India (Sebi) on Monday approved the new norms. The proposal is aimed at helping the shareholders make an exit if they feel dissatisfied with any change in business plan of the company concerned after raising funds through IPOs, FPOs or any other capital-raising exercise involving public investors.
Issuing the discussion paper on 'exit offer to dissenting shareholders', Sebi said that the provision should be made applicable to such contracts which may substantially affect the main line of business or revenue generation of the company.
It has been proposed that companies may provide an exit route, if an offer is dissented by 10% of the shareholders.
"...investors who are holding shares as on the date on which the proposal to change the objects becomes public should be allowed to exit under this provision", Sebi has proposed.
The market watchdog said that exit price should be based on the existing market value of the stock.
Sebi has floated the draft papers and sought public comments till December 23. The final norms would be put in place after taking into consideration suggestions from public.
The markets regulator said that there may be instances wherein a company has already utilised higher percentage of the amount raised and intends to change the objects to some extent due to certain reasons.
"In such cases, the promoters or persons in control should give exit opportunity only if the amount utilised is less than a specified percentage of the total amount raised for the objects of the issue, i.e 75%", it added.
A company which has raised money from public through prospectus and still has any unutilised amount out of the money so raised cannot change its objectives for which it raised the funds through prospectus unless a special resolution is passed.
Besides, dissenting shareholders or those who are not satisfied with the changes, would be provided an exit option. Such dissenting shareholders should be given an opportunity to exit by the promoters and shareholders having control.
In recent times, there have been many instances where investors were duped by illicit money pooling schemes that promised high return on investments.
Giving details of the exit offer, Sebi has suggested that companies proposing the passing of the special resolution for changing the objects of the issue should disclose information about such offer to the dissenting shareholders in the prospectus.
The issuer should have to intimate the exchanges about the offer of promoters or shareholders to dissenting shareholders and the price at which the exit offer is being given.
The promoters or shareholders in control should appoint a merchant banker and finalise the exit price in accordance with the regulations specified in this regard.
The tendering period should "start not later than seven working days from the passing of the special resolution and shall remain open for ten working days."
Within two working days from payment of consideration, the listed firm should make a disclosure to the exchange giving details of aggregate number of shares tendered, accepted, payment of consideration and post offer shareholding pattern of promoters and a report by the merchant banker that the payment has been duly made to all dissenting shareholders.