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The Securities and Exchange Board of India (SEBI) has intensified its focus on disclosures, compelling IPO-bound companies to accurately list their promoters. Merchant bankers and lawyers have observed that entities with controlling stakes or significant influence are now mandatorily included as promoters. This heightened scrutiny has led to many companies, such as Emcure Pharmaceuticals and Unicommerce eSolutions, revising their promoter lists through addendums to their Draft Red Herring Prospectuses (DRHPs).
In the past few months, the regulator and stock exchanges have enforced strict parameters for classifying certain entities as promoters, prompting many companies to update their promoter entities after filing their DRHPs. This has been evident in companies like DEE Development Engineers, Flair Writing Industries, Patel Retail, BMW Ventures, and Bazaar Style Retail, which have all filed addendums to amend their promoter lists.
A significant change occurred earlier this year when merchant bankers were informed that founders holding more than a 10% stake in an IPO-bound company, individually or collectively, and those holding executive positions must be categorized as promoters. This includes immediate relatives who hold a board seat or have at least a 10% stake. Previously, these individuals could have been classified as part of the ‘promoter group’ rather than being labelled as ‘promoters.’
The identification of a promoter has come under scrutiny mainly due to certain issuers who labelled themselves as professionally managed companies without a promoter,” says Abhimanyu Bhattacharya, Partner at Khaitan & Co. However, individuals in executive positions with substantial shareholdings were observed to influence company operations, leading SEBI and stock exchanges to reassess the identification of promoters.
The requirements currently fall under “advisory” or “informal guidance” and are not yet incorporated into SEBI regulations. As a result, companies and bankers often make necessary changes only if directed to do so, leading to addendums after filing the DRHPs.
“There is a case-by-case approach, necessitating the use of addendums. However, the merchant banking community is now clearer on SEBI’s thinking,” said a leading merchant banker. A broader discussion on the issue would help all stakeholders and incorporating these requirements into Sebi regulations would be beneficial.
In the case of Emcure Pharmaceuticals, an addendum reclassified Namita Thapar and Samit Satish Mehta as promoters. Similarly, Unicommerce eSolutions initially listed AceVector (formerly Snapdeal) as a promoter but later included Snapdeal founders Kunal Bahl and Rohit Kumar Bansal.