Sebi considering easing of RPT norms for high-value debt listed entities

The Securities and Exchange Board of India (Sebi) is considering easing corporate governance rules pertaining to related party transactions (RPT) for listed non-convertible debentures or debt (NCDs).

At present, the regulations require the so-called high value debt listed entities (HVDLE) — listed companies having NCDs with outstanding value of at least Rs 500 crore — get approval from the majority of their shareholders who are not related parties.

India incorporation made representations to Sebi, seeking an exemption from this rule highlighting challenges faced by them. After which, the regulator analysed 138 HVDLEs to understand the issue better. About 93 of such HVDLEs had all shareholders as related parties. In such cases, there was no non-related shareholder to approve the RPTs.

There were another 11 cases where 90 to 99 per cent of the shareholders were related parties. In such cases, the number of the remaining non-related shareholders was “negligible” to approve or disapprove the RPTs. In only 34 of 138 HVDLEs, less than 90 per cent of the shareholders were related parties. Only in such cases, the adherence to specified requirements was possible, Sebi felt.

“Such shareholders, who are not related parties, either hold a negligible portion of the equity or none at all, in which case the entity will not be able to transact such RPTs because of ‘impossibility of compliance’ of the provision,” said the markets regulator.

In a discussion paper, Sebi has proposed that only HVDLEs having 90 per cent or more related party shareholders will have to send notice to debenture holders holding listed NCDs. These debenture holders will have to submit objections, if any, within seven days. If the objection is from 75 per cent or more of the debenture holders by value, then the agenda for RPT will be withdrawn.

An RPT refers to any transaction between the same or connected promoter groups.

The watchdog has said that proper regulations around RPTs are necessary as companies tend to dilute or circumvent the requirements by procuring approvals for continuous lending to group companies.

The regulator said that the common factor in major corporate wrongdoings was that they were allegedly carried out by persons with the ability to influence the decisions of the company.