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MNCs face Sebi heat on public-holding norms
Source : The Economic Times Date : 30 Apr 2013  
MUMBAI: India’s capital market regulator the Securities and Exchange Board of India (Sebi) is adopting a tough stance against some multinational companies for allegedly taking liberties with the regulator’s rules that make it mandatory for promoters of listed companies to increase the public shareholding in their companies to 25% of the equity capital. Sebi has asked Bank of America-Merrill Lynch (BofA-ML), the banker to multinational drug maker Fresenius Oncology Kabi, to explain the reason behind its plan to delist the company seven months after it sold shares to the public through an offer for sale (OFS), said a person with direct knowledge of the development. "Sebi has asked for an explanation from the merchant banker on how they are complying with the delisting rules,’’ the person said. "If the company wanted to delist, it could have done it but, Sebi would like to know whether the change in strategy was done to defeat the spirit behind the rules. If they try to defeat the spirit of the regulations, Sebi won’t allow it. You have to follow the rules both in letter and in spirit," he added. A spokesperson for Bank of America-Merrill Lynch declined comment on the issues raised by the regulator. In a related development, the regulator is also likely to ask promoters of some companies to give up some of their rights if they have been reclassified as non-promoters. Sebi had recently rejected proposals from Gillette and Gokaldas Exports which tried to reclassify some of its promoters as non-promoters in order to comply with publicholding norms. Last week, Fresenius announced its plans to delist its Indian subsidiary FreseniusKabi Oncology (FKOL). The announcement raised eyebrows as it came close on the heels of its OFS. Securities lawyers said the move by the multinational firm could set a wrong precedent. "This strategy could be adopted by some promoters to delist their shares easily later on as they have more control over the new set of investors to whom the shares allotted in the offer for sale," a senior lawyer said. In October 2012, Fresenius sold 1.42 crore share though an OFS to reduce its stake from 90% to 81% with a floor price of Rs 80 apiece to partly comply with Sebi rules. A company can be delisted from domestic bourses if its offer results in promoters’ stake crossing 90% or the promoters acquiring at least half of the public holding, whichever is higher. In Fresenius’ case, before the OFS, the promoter holding was 90%. Hence, it required 5% of the equity capital from the public to delist the company. The promoters, who now own 81%, need to buy another 9.5% stake to delist. Investors are concerned that some of the participatory note holders who purchased shares in the OFS may sell them in the delisting offer, making it easier for the promoters to take the company private. "These concerns are misplaced. It is not possible to predict the course that will be adopted by the public shareholders in a delisting offer," said Matthias Link, vice-president, corporate communications at FreseniusKabi. Link also said, "Subsequent to the OFS, there has been a change in the India strategy of the promoters due to certain extraneous events.

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