An 8,764 per cent surge in the shares of a company with a minuscule public shareholding has prompted the Securities and Exchange Board of India to consider changing its rules for firms emerging from the nation's bankruptcy process.
The regulator has sought comments on a proposal to cut the time given to companies that re-list after bankruptcy resolution to boost the free float to at least 10 per cent within six months from 18 months currently. The rule mandating such companies to eventually get to the minimum shareholding of 25 per cent within three years of re-listing remains.
“In one recent case it was observed that post insolvency resolution process, the public shareholding decreased to 0.97 per cent, and showed 8,764 per cent increase in its share price,” SEBI's consultation paper said, listing Ruchi Soya Industries Ltd. and four other companies that re-listed between September 2018 and February.
Ruchi Soya was acquired by a Yoga guru Baba Ramdev's Patanjali Ayurveda-led consortium last year via an insolvency resolution process. The founders held 99.03 per cent of the company's capital as of March 31.
The negligible free float saw Ruchi's shares soar from about ₹ 17 at the time of re-listing on January 27 to ₹ 1,519 on June 26. The price has since halved. Still, at its peak, the company was valued at $6 billion, ahead of bigger consumer-staples producers including Marico Industries Ltd. and Colgate-Palmolive India Ltd. The stock ended down 3.29 per cent at ₹ 696.20 in Mumbai on Thursday.
“Such low public shareholding raises multiple concerns like failure of fair discovery of price of the scrip, need for increased surveillance measures etc. and may therefore pose as a red flag for future cases,” the regulator said.