SEBI floats consultation paper on Superior Voting Rights Share framework

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Markets regulator SEBI on Thursday floated a consultation paper on certain aspects of the Superior Voting Rights Share (SR share) Framework including net worth requirements of SR shareholders.

In addition, suggestions from the public have been sought with regard to the issuance of SR shares to trusts and other entities on behalf of promoters and the timing of issuance of such shares, according to the consultation paper.

Market participants are of the view that certain aspects of the 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 the net-worth requirement of SR shareholders 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 the net-worth requirement for SR shareholders be determined individually or as part of the promoter group.

The regulator also asked whether the net-worth threshold for SR shareholders 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 the 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 a 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 utilizing 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 on whether the requirement of holding SR shares for a period of 6 months prior to the date of the red herring prospectus (RHP) should be deleted.

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