Don’t just sit on your cash piles: Sebi to India Inc
29 Nov 2014 11:36 PM GMT
With many big corporates sitting on huge cash piles, regulator Sebi on Friday said it wants listed companies to have a dividend distribution policy and hoarding of cash should be discouraged. Sebi Chairman U K Sinha said the regulator is working on a proposal to encourage companies to distribute a certain amount of dividend among shareholders for a certain profit made by them. He, however, added that this should not mean that the entire cash should be distributed by the companies.
‘Nobody is asking that the entire cash should be paid, but there should be a dividend policy so there is some amount of certainty that if a company is making an X percentage of profit, then so much will be distributed. We are working towards it, and will take some time, it is in initial stage,’ Sinha said here at a conference on corporate governance.
The comments come at a time when a large number of companies including Infosys, Bajaj Auto and Hero are said to be sitting on large cash piles. There have often been demands that companies with large cash balances should either distribute dividend or use the cash for other business needs.
Noting that there is a strong investor sentiment worldwide against companies hoarding cash and being stingy with dividend payouts, Sinha said Sebi is ‘looking at a method to incentivise corporate India to have a dividend distribution policy’.
‘The world over there is a strong demand and that you are seeing at corporate boards and in annual general meetings there is strong demand that cash hoarding should be discouraged,’ he added.
Pointing out that there is ‘no declared dividend policy in the country,’ Sinha said, shareholders have been demanding that the regulator ensure that at least there is a dividend policy. On the new delisting norms announced by the Sebi board last week, Sinha said the endeavor is to relax the regulations and make it easier for the companies.
Countering arguments that the new norms were more stringent than the previous ones, Sinha said, ‘I think they have been relaxed. Earlier, when we came through our takeover regulations, it prescribed that if you reach over 75 per cent and reach 90 per cent, then to de-list you have to first bring down your stake below 75 per cent and then you have to file another paper for delisting.
‘There was a two stage process. Don't forget that now in one stroke we have removed that requirement which means if a company has decided to get de-listed they can indicate its willingness right in the beginning. The two stage-process has been reduced to one stage process now,’ he said.
Sinha further said that in the new process, there would not be any pricing pressure from the promoter groups or other shareholders. With regard to recent reports and speculations about tightening of norms for foreign portfolio investors and P-Notes, Sinha said Sebi has only issued some clarifications and there was nothing new in effect in the regulations.
‘Earlier there could be a situation where FIIs had less than 10 per cent stake but the sub-accounts together could get away with it. Now the government has come out with a policy on what is FII and FDI investment clearly mentioning the 10 per cent cap. So, we have to bring out a clarification,’ he added. Sinha also dismissed apprehensions that the new norms could affect foreign inflows, saying the fear is completely misplaced.
‘Nobody is asking that the entire cash should be paid, but there should be a dividend policy so there is some amount of certainty that if a company is making an X percentage of profit, then so much will be distributed. We are working towards it, and will take some time, it is in initial stage,’ Sinha said here at a conference on corporate governance.
The comments come at a time when a large number of companies including Infosys, Bajaj Auto and Hero are said to be sitting on large cash piles. There have often been demands that companies with large cash balances should either distribute dividend or use the cash for other business needs.
Noting that there is a strong investor sentiment worldwide against companies hoarding cash and being stingy with dividend payouts, Sinha said Sebi is ‘looking at a method to incentivise corporate India to have a dividend distribution policy’.
‘The world over there is a strong demand and that you are seeing at corporate boards and in annual general meetings there is strong demand that cash hoarding should be discouraged,’ he added.
Pointing out that there is ‘no declared dividend policy in the country,’ Sinha said, shareholders have been demanding that the regulator ensure that at least there is a dividend policy. On the new delisting norms announced by the Sebi board last week, Sinha said the endeavor is to relax the regulations and make it easier for the companies.
Countering arguments that the new norms were more stringent than the previous ones, Sinha said, ‘I think they have been relaxed. Earlier, when we came through our takeover regulations, it prescribed that if you reach over 75 per cent and reach 90 per cent, then to de-list you have to first bring down your stake below 75 per cent and then you have to file another paper for delisting.
‘There was a two stage process. Don't forget that now in one stroke we have removed that requirement which means if a company has decided to get de-listed they can indicate its willingness right in the beginning. The two stage-process has been reduced to one stage process now,’ he said.
Sinha further said that in the new process, there would not be any pricing pressure from the promoter groups or other shareholders. With regard to recent reports and speculations about tightening of norms for foreign portfolio investors and P-Notes, Sinha said Sebi has only issued some clarifications and there was nothing new in effect in the regulations.
‘Earlier there could be a situation where FIIs had less than 10 per cent stake but the sub-accounts together could get away with it. Now the government has come out with a policy on what is FII and FDI investment clearly mentioning the 10 per cent cap. So, we have to bring out a clarification,’ he added. Sinha also dismissed apprehensions that the new norms could affect foreign inflows, saying the fear is completely misplaced.
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