Market regulator Securities & Exchange Board of India (Sebi) has notified the amendment to the equity-listing agreement, prohibiting listed companies from issuing shares with superior rights with regards to voting or dividends for shares that are already listed.
The decision to prohibit listed companies from issuing shares with superior rights was taken at Sebi’s board meeting held on June 18, 2009, and the amended guidelines will come in to immediate effect.
For giving effect to the above decision, the regulator has inserted a new clause in the listing agreement which states, “The company agrees that it shall not issue shares in any manner which may confer on any person superior rights as to voting or dividend vis-a-vis the rights on equity shares that are already listed”.
The latest move by Sebi is intended to protect the interest of ordinary shareholders as there were few instances in the past where promoters have misused the provision by issuing shares with superior voting rights.
The regulator has earlier noted that if a listed company issues shares with differential rights (SWDR) with superior voting rights and that too through preferential issue to a select group of persons, this may become a tool in the hands of the promoters to increase their control and voting rights in the company by way of issuing SWDR with superior voting rights to themselves.
Currently, the pricing guidelines for preferential allotment and qualified institutional placement are applicable for shares with equal voting rights. As such, the regulator fears that a preferential or QIP issuance of SWDRs with superior voting rights would clearly benefit the allottee, which shall get shares carrying superior voting rights at the cost of equal voting rights shares. This will adversely affect the rights of other public shareholders.
