[ by Kavita Krishnan ]Markets regulator Securities and Exchange Board of India (SEBI) approved stricter disclosure norms for listed companies on loan defaults and revised its regulations for portfolio managers as well as for rights issue of shares. Resultantly, listed companies cannot hide their loan default beyond 31 days.The move will help investors draw an informed conclusion about a...
Markets regulator Securities and Exchange Board of India (SEBI) approved stricter disclosure norms for listed companies on loan defaults and revised its regulations for portfolio managers as well as for rights issue of shares. Resultantly, listed companies cannot hide their loan default beyond 31 days.
The move will help investors draw an informed conclusion about a firm’s financial health and prevent a sudden erosion of their wealth when such an event is discovered.
The SEBI press release states that “In order to address the gaps in availability of information with respect to defaults, the Board has, inter-alia, decided that in case of any default in repayment of principal or interest on loans from banks or financial institutions which continues beyond 30 days from the pre-agreed payment date, listed entities shall, promptly, but not later than 24 hours from the 30th day, disclose the fact of such default.” These provisions shall come into force from January 01, 2020.
Over the past year, several listed entities have defaulted on their loan repayments but failed to disclose these to investors. Whenever the revelations happened, there has been sharp decline in prices of securities issued by them. Currently, there is no SEBI norm that requires any listed entity or its promoters to disclose repayment defaults to the market.
Recently, Infrastructure Leasing and Financial Services Ltd. (IL&FS) defaulted on its payment obligations last year. The other companies who defaulted on repayments include Dewan Housing Finance Corp. Ltd (DHFL), Jet Airways, Reliance Capital and Reliance Communications.
SEBI has also tightened the norms for the Portfolio Management Services (PMS) industry. SEBI said that the net-worth requirement for Portfolio Managers has been revised to Rs. 5 crore from Rs. 2 crore. Those with a net-worth of less than Rs. 5 crore will not get SEBI registration. The existing Portfolio Managers shall be required to meet the enhanced requirement within 36 months.
This move is likely to affect thousands of Portfolio Managers across India.
Minimum investment by clients of Portfolio Managers to be increased from INR 25 lakhs to INR 50 lakhs
SEBI is said to be working on ways to make listed firms more serious about whistleblower complaints and disclose such complaints on exchanges if the allegations or its implications are material. Recently, a whistleblower complaint was filed against the CEO of Infosys Ltd. and some of its top officials. The whistleblower alleged the Board of Infosys did not disclose the whistleblower complaint while announcing the company’s earnings and when a news report revealed it, the Infosys stock sunk.
One of the key proposals of the meeting also includes revision of norms for issuance of shares on rights basis to existing shareholders. The timeline would be reduced to 31 days from the current period of 55 days.