Sebi Floats Consultation Paper on SR Share Framework

Sebi on Thursday floated a consultation paper on certain aspects of Superior Voting Rights Share (SR share) Framework, including net worth requirements of SR shareholders. It has also sought suggestions from public with regard to issuance of SR shares to trusts and other entities on behalf of promoters, and timing of issuance of such shares.

Market participants are of the view that certain aspects of current framework on SR shares are onerous which delays such issuer companies from raising funds from capital markets.

Sebi’s Primary Market Advisory Committee (PMAC) deliberated the matter and considered mandating net-worth requirement of SR shareholder on an individual basis. The threshold for such net-worth requirement can also be enhanced, the consultation paper noted.

Sebi has sought suggestions till July 30 on several aspects, including whether net-worth requirement for SR shareholder be determined individually or as part of promoter group. The regulator also asked whether the net-worth threshold for SR shareholder should be retained at Rs 500 crore, or enhanced. If it is to be enhanced, then suggestion has been sought on the new threshold and whether the proceeds from sale of shares of the issuer company should be excluded while determining net-worth.

According to market participants, the current norms, which say an SR shareholder will not be part of promoter group whose collective net worth is more than Rs 500 crore, are too onerous to comply with and keeping prospective SR shareholders away from utilising the SR shares framework, as per the consultation paper.

Sebi has sought suggestions on whether holding companies or registered family trust or partnerships where promoters or founders are in control or sole trustees can also be permitted to hold SR shares as long as such promoters/ founders/ trustee continue to hold executive positions in the issuer company.

At present, SR shares were issued only to the promoters and founders who hold an executive position in the issuer company.

In addition, suggestions have been sought whether the requirement of holding SR shares for a period of 6 months prior to the date of red herring prospectus (RHP) should be deleted.

Currently, the rules stipulates that SR shares should have been held for a period of at least 6 months prior to the filing of the RHP.