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Listing regulations: SEBI wants India Inc to disclose more

In what could herald a new era of disclosure standards for Indian companies, securities regulator Sebi has put up a long list of events or developments that companies will not have to mandatorily disclosed, reports CNBC-TV18’s Menaka Doshi.

Among the list of disclosures required are those related to acquisitions, agreements to acquire, and even an acquisition of 5 percent or more in another entity.

Also included are include sale or disposal of any units, divisions, subsidiaries of the listed entity. Also any restriction on transferability of securities, the alteration of calls, rating revisions, shareholder agreements, joint venture agreements, family settlement agreements — the relevant portions — have to be disclosed.

Fraud, defaults by promoter or key managerial personnel need to be disclosed, corporate debt restructuring, one time settlement with a bank also need to be disclosed.

Additionally, SEBI has listed some events and developments that companies must consider disclosing based on their materiality.

For instance, capacity addition, product launch, loan agreements, the effect of changes in regulatory frameworks, litigation. Finally, SEBI has also prescribed how much detail companies should provide in such disclosures.

Till now, companies have gotten away by giving investors bare amount of details. But SEBI has put down very clear guidance on how much detail needs to be given.

For instance, in an acquisition or amalgamation, the company has to, besides disclosing price, rationale, all the regulatory clearances required, also inform shareholders whether the acquisition is a related party transaction or not, and whether the promoter has any interest in the entity being acquired. Also whether the transaction is being done at “arms length” or not.

In the sale of a unit – the company needs to provide details on the unit’s contribution to revenue and net worth, whether it’s a related party transaction and is being done at arms length or not.

In the case of a preferential issue the names of all participating investors have to be disclosed.

Detailed disclosures are also required in ADRs/GDRs & FCCB issues – for instance the company must disclose if it has defaulted on paying the FCCB coupon and it must also disclose what corrective measures it is undertaking to be able to overcome that default.

Any special rights or interests attached to debt securities now has to be disclosed

Any restriction on transferability of shares that must be disclosed along with reasons for those restrictions as well as the details of affected shares

When it comes to agreements such as shareholder agreements or joint venture agreements or even family agreements – companies must now give names of parties to the agreement, the purpose of the agreement, and the affirmative rights being granted in that agreement. Also the relationship to the promoter of the other transacting parties also needs to be described.

Shareholders will also get details on frauds by key managerial personnel, details on corporate debt restructuring or one time settlements with the bank.

SEBI has also provided guidance and here is where it is a little bit more narrow or limited on when an event or development has occurred and hence must be disclosed. So, for instance, some events such a rights issue will have to be disclosed at the time of the board approval. But there is no reference in that SEBI guidance as to when a company must disclose an acquisition.

Often acquisitions are reported when negotiations are going on. So, do companies have to disclose at that stage, should they disclose only at the board approvals stage? That has not been tended to in this guideline, as it could be a sticky area.

But that said, companies now have more clarity than before on what to disclose but most important shareholders get to benefit from all this transparency.

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