The Securities and Exchange Board of India (Sebi) on Thursday amended royalty payment norms and approved the introduction of superior voting rights share for technology companies.

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Sebi board meet highlights: New DVR framework, tightens norms for mutual funds, pledged shares

Royalty Payments

According to new norms, if the royalty payments exceed 5 percent of the consolidated turnover of the company, then it will require shareholder approval. The royalty payment is the fee paid by Indian subsidiaries to overseas parent companies for the usage of the brand.

Differential Voting Right

Further, Sebi has approved the framework for issuance of differential voting right (DVR) share issues, effective from July 1, 2019. The regulator said companies having superior voting rights shares would be permitted to come out with IPO if the issuer is a technology company or superior voting rights is a part of promoter group whose net worth does not exceed Rs 500 crore. Post-IPO, superior voting rights shares will be treated as regular shares.

In India, as per regulations, DVR shares are a class of corporate shares which have Fractional Voting Rights. They are appropriate for companies whose owners do not want to dilute their control over their businesses by issuing ordinary equity shares. By issuing DVR shares with fractional voting rights, they can raise capital without the risk of a hostile takeover.

Mutual Funds

Sebi chairman Ajay Tyagi told reports after a board meeting that it has been decided to ban mutual funds from entering into standstill pacts with companies apart from making them hold at least 20 percent assets of liquid funds in cash equivalents.

"Mutual funds can't have standstill agreements with companies. We have taken action against mutual funds who had standstill pact with companies," Tyagi said.

For liquid funds, Sebi has reduced exposure to a single sector at 20 percent against 25 percent earlier, 10 percent to housing finance companies (HFCs) against 15 percent, 5 percent additional to securitised retail home loans and affordable home loans.

Pledged Shares

The Sebi board also approved the proposals for disclosure of encumbrances with respect to pledged shares. According to Sebi, encumbrances to include any restriction on the ‘free & marketable’ titles to shares, by whatever name called, whether executed directly or indirectly. Also, it includes a pledge, lien, negative lien, non-disposable undertaking.

Net Asset Value

Besides pledged shares, the regulator also discussed in-principal approval for changes in the method of calculation of net asset value, with a view to tackle the problem of concentration of asset under management with just 10 asset management companies and increasing the scope of the definition of encumbrance.

Tyagi also said Sebi has started the adjudication process against some credit rating agencies. He said the regulator has completed its probe into the Whatsapp leaks last and the report will be put into the public domain shortly.

(With inputs from PTI)

First Published:Jun 27, 2019 5:02 PM IST