Sebi tightens transfer of PNotes
Asks top 500 companies to frame dividend distribution policy to curb arbitrary decisions
The Securities and Exchange Board of India ( Sebi) has notified new norms restricting transfer of controversy- ridden P- Notes only to entities authorised for their use and that too after prior consent from the issuer foreign investor.
This decision is expected to prevent the misuse of offshore instruments, which are alleged to have been used to re- route black money into the country.
Participatory Notes or Offshore Derivative Units are issued by Sebi- registered foreign portfolio investors to other overseas entities looking for an exposure to the Indian markets without getting registered directly to save on costs and procedures. However, Sebi has tightened its norms substantially over the years about who can issue and who can subscribe to these instruments, amid long- standing concerns about their possible misuse for laundering of money.
The regulator decided on the latest tightening of norms earlier this year after recommendations in this regard were made by the Supreme Courtappointed Special Investigation Team on Black Money.
As per the new notification, a foreign portfolio investor will have to ensure that any transfer of offshore derivative instruments issued by or on behalf of it, is made subject to two specific conditions — such ODIs are transferred to persons fulfilling Sebi norms for subscription and a prior consent of the FPI is obtained for such transfer, except when the persons to whom the ODIs are to be transferred to are preapproved by the FPI.
The market regulator has also notified the new dividend distribution policy that will give a better picture to investors on the circumstances under which they may or may not receive dividend.
Under the new regulations, the top 500 listed entities based on market capitalisation are required to formulate a dividend distribution policy, which should be disclosed in their annual reports and on their websites.
The new policies would help potential investors to estimate their expected dividend and plan their investment strategies accordingly.
The new policy has been formulated following widespread resentment among certain sections of shareholders regarding inadequate dividend despite the companies having surplus cash and retained earnings at their disposal.
According to the new norms, the dividend distribution policy should contain the circumstances under which the shareholders of the listed entities may or may not expect dividend, the financial parameters that shall be considered while declaring dividend, internal and external factors that shall be considered for declaration of dividend, policy as to how the retained earnings shall be utilised and parameters that shall be adopted with regard to various classes of shares.
“This is a widely followed practice in most of the developed markets. There are many shareholders who are investing in companies for dividend income apart from the capital gains they are targeting,” said J. N. Gupta, managing director of Stakeholders Empowerment Services.