A possible shareholding gaffe at Glenmark Life Sciences has put into the shade a new system introduced by market regulator Securities and Exchange Board of India (Sebi). This system is being put in place to prevent the inadvertent purchase of shares by company insiders during the ban period. A circular was issued by Sebi last month regarding the new system.
Glenmark Life Sciences (GLS), a subsidiary of Glenmark Pharmaceuticals and a developer and manufacturer of active pharmaceutical ingredients (APIs), got listed in August 2021 following a Rs 1,500-crore initial public offering (IPO). After listing, the promoter shareholding in the company fell from 100 per cent to 82.84 per cent. After the IPO, any company has three years to bring down their promoter holding to at least 75 per cent to comply with the minimum public shareholding requirement. During this time, promoters are not allowed to increase their stake further.
However, GLS’ promoter shareholding went up marginally from 82.84 per cent to 82.85 per cent, shareholding data available on stock exchanges show. This was on account of the purchase of 7,800 shares from the open market by one of the promoters.
Stakeholders Empowerment Services (SES), a proxy advisory firm, says a promoter can only acquire any additional shares in their company when their shareholding is below 75 per cent or else it is a breach of Sebi’s SAST (Substantial Acquisition of Shares and Takeovers) Regulations.
“In present case, the promoter (Glenmark Pharmaceuticals and Glenn Mario Saldanha) already held 82.84 per cent and Saldanha purchased 7,800 shares (0.01 per cent) from the market in November 2021. What are the consequences of such acquisition and violation of law? SAST Regulations have only two windows – open offer or exemption by Sebi,” said SES.
Since the acquisition is minuscule, it is likely that this is an “inadvertent violations”, however, the Sebi regulation is silent on addressing such anomalies, SES says.
SES observes that the increase in stake first reflected under ‘public’ shareholding as per a BSE disclosure on January 27 2022 and later was rectified under the correct ‘promoter’ shareholding head.
In its response to a query by Business Standard, GLS said they have made the necessary disclosures.
“The shares were purchased towards the end of 2021 and were appropriately disclosed in accordance with applicable law,” a spokesperson stated.
Last month, Sebi came up with a new mechanism to tackle such issues at its root. This system prevents company insiders from dealing in shares whenever they are not allowed to. This is done by putting the depository participant (DP) identification numbers into the restriction list every time the trading window is closed.
“Improve ease of doing business and prevent inadvertent non-compliance of provisions of PIT Regulations by DPs, after having deliberations with stock exchanges and depositories and listed companies, it has been decided that stock exchanges and depositories shall develop a system to restrict trading by DPs of the listed company during the trading window closure period,” Sebi said in a circular.
To be sure, there isn’t much clarity on when the new system will be up and running and whether it will also apply for instances such as GLS.
However, legal experts say Sebi’s proposal will help a great deal in preventing inadvertent trades by company insiders without fully understanding the restrictions.