The Hindu Business Line : Cos will have to disclose pledged shares: SEBI

Mumbai, Jan. 21 Any pledge of shares held by promoters in their own listed companies must be mandatorily disclosed to the stock exchanges, the SEBI board decided on Wednesday.

Such disclosures shall be event-based – made as and when the shares are pledged – as well as periodic, the information to be made public every quarter, said Mr C.B. Bhave, Chairman of SEBI, at a news conference following the board meeting on Wednesday.

The capital markets regulator will also prescribe limits for such pledging of shares, said Mr Bhave. All this would be notified through an amendment to the Listing Agreement. The decision was made on the advice of the Primary Market Advisory Committee of the board.

According to the new norms, listed companies will have to disclose pledged shares starting from information for the third quarter ended on December 31, 2008. However “extra time will be provided for this quarter,” said Mr Bhave.

“Details of the pledge of shares and release/sale of “pledged shares” shall be made to the company and the company shall in turn inform the same to the public through the stock exchanges,” a SEBI release said.

SEBI’s decision must be seen in the light of the Satyam Computer Services scandal, which also involved the pledging of shares in the company by its promoter Mr B. Ramalinga Raju. On December 29, IL&FS Trust sold 44.1 lakh shares of Satyam pledged to it by Mr Raju’s family-owned investment company SRSR Holding. On January 6, one day before Mr Raju’s confessional statement admitting to a fraud of more than Rs. 7,000 crore in Satyam Computer, IL&FS Trust sold more than 2.11 crore shares in Satyam in the open market.

Satyam probe

The SEBI board also reviewed the progress made so far in its investigation into the Satyam Computer fiasco, the SEBI Chairman said.

The regulator has not been able to question Mr Raju yet, but it has questioned the audit and internal finance departments at Satyam. “We will also seek verification from the banks on the fixed deposits of Satyam Computer,” said Mr Bhave.

Peer review

On the peer review of listed companies announced earlier by the regulator, Mr Bhave said that the board had agreed to the concept but SEBI had yet to constitute a panel of Chartered Accountants. (SEBI had earlier announced that listed companies in the Sensex and Nifty would be subject to a review of their accounts by a panel of auditors established by the regulator.)

Replying to a query on whether promoters’ pledging of shares they own in a holding company also needs to be disclosed, Mr Bhave said such pledging would not have to be disclosed.

However, market experts called the new norms a knee jerk reaction on the part of the regulator “since borrowing was a private affair and the promoters had limited borrowing options to raise funds, and often have to approach NBFCs and private financiers.”

“Let the NBFCs and private financiers report lending against shares to the regulator as they do to the RBI, that will solve the problem,” said Mr R. Balakrishnan, Executive Director, Centrum Capital.

“Anyway, the promoters have to inform stock exchanges in case they pledge more than ten per cent stake,” Mr Balakrishnan said.