The over 8,700 per cent surge in Ruchi Soya's share price, post its relisting, with the public shareholding at a meagre 0.97 per cent, has drawn the attention of the SEBI. The market regulator, among other options, has proposed to make it mandatory for post-CIRP companies to have at least 10 per cent public shareholding at the time of relisting.
Such companies may be provided three years to achieve a minimum public shareholding of 25 per cent, it said. In case of IPOs, in terms of Rule 19(2) (b) of the Securities Contracts (Regulation) Rules, companies are mandated to have at least 10 per cent public shareholding.
Another proposal put forward by the Securities and Exchange Board of India (SEBI), in a consultation paper issued on Wednesday, is to reduce the timeline for post-CIRP firms to achieve the public shareholding of 10 per cent to six months.
SEBI norms currently say that in case of companies where public shareholding falls below 10 per cent due to the implementation of the resolution plan under the Insolvency and Bankruptcy Code (IBC), then such companies should attain the 10 per cent level within 18 months and 25 per cent within three years from the date of such fall.
"Post-CIRP companies may be mandated to achieve at least 10 per cent public shareholding within six months and 25 per cent within 3 years from the date of breach of MPS norm," it said.
Another option proposed in the paper is that post-CIRP companies may be mandated to have at least 5 per cent public shareholding at the time of relisting and such companies may be provided 12 months to achieve public shareholding of 10 per cent and further 24 months to achieve public shareholding of 25 percent.
The SEBI, however, said that a concern in the 5 per cent threshold is that it may not be significant to allay concerns. But, the positive side is that a lower threshold, such as 5 per cent, will incentivise companies from staying listed and any higher threshold may push for total delisting.
The regulator has sought comments on the proposals by September 18.
The SEBI noted that although relaxations are available, it is possible that, pursuant to implementation of the resolution plan, the public shareholding in such companies may drop to abysmally low levels.
Citing the instance of Ruchi Soya which was acquired by Patanjali Ayurved through CRIP and relisted in January, the consultation paper said: "In one recent case, it was observed that post-CIRP, the public shareholding has decreased to 0.97 per cent, and showed 8,764 per cent increase in its share price in spite of additional preventive surveillance actions, including reduction in price band and moving the scrip into trade for trade segment."
On January 27, the day it was relisted, Ruchi Soya's shares on the BSE closed at Rs 16.90 and in June, it touched a high of 1,507.30 per share.
Market experts raised concerns on the incessant rise in prices at a time when the public shareholding is very low. BSE data shows that as of June, the public shareholding stands at 1.03 per cent and the promoter shareholding at 98.97 per cent.
Sonam Chandwani, Managing Partner at KS Legal & Associates, said: "Numerous options in relation to post-CIRP companies may be mandated to achieve at least 10 or 5 per cent public shareholding. A major concern with 5 per cent threshold is that it is a miniscule threshold to allay certain concerns, however a lower threshold may incentivise companies from staying listed and any higher threshold may push for total delisting."
She noted that the additional disclosure requirements pertaining to pre and post net-worth of the company, description of business strategy, impact on investors, resolution plan details, among others, are steps in the right direction and are likely to enhance transparency of the CIRP and reinstate investor trust and confidence.