Sebi asks SEs to list cos not complying with Clause 40A

Oct 27, 2007
Ashish Rukhaiyar
MUMBAI

THE Securities and Exchange Board of India (Sebi) has asked stock exchanges to compile a list of companies that are yet to comply with the revised Clause 40A of the listing agreement as soon as possible and upload the same on their websites.

According to sources, BSE and NSE representatives were told to prepare this list in the latest surveillance meeting that was held on Monday. Exchange sources further add that the list is likely to be ready within the next two weeks.

Clause 40A of the listing agreement requires all listed companies, other than some exempted ones, to ensure minimum level of public shareholding at 25% of the total number of issued shares for the purpose of continuous listing. In other words, promoter and promoter-group combined have to bring down their stake to 75% of the total equity.

As far as the exchanges are concerned, it is believed that NSE might find the task comparatively easier as the exchange has less than 1,200 companies listed on it. On the other hand, BSE has nearly 7,700 companies listed, out of which around 2,600 companies are traded actively. Sources say that BSE has formed a team of 3-4 persons for the task of compiling the list.

While there are many listed companies where the promoter holding is more than 75% if the exempted ones are excluded, sources say that around 150 companies are likely to find themselves in the non-compliant list. Meanwhile, promoters have time till May next year to bring down their stakes to the stipulated level.

“The revised Clause 40A came into force on May 1, 2006, and companies were given a maximum of two years’ time to comply with the new law,” said a source close to the development, adding that since not much time is left for the deadline to expire, the regulator has once again reminded the exchanges to take the required steps.

“Processes take time and so need to be initiated now as only six months are left,” he added. He further said that some promoters have already started offloading stake in small tranches as the recent bull run provided an excellent selling opportunity.

According to an ETanalysis, Jai Corp, Marathon Nextgen Realty, Escorts Finance, Nagarjuna Agrichem, Bhoruka Steel, Honeywell Automation, Uttam Sugar and Hindusthan National are instances where the promoters have to further dilute their stake.