Indian PE side agreements draw ire from SEBI

9 October 2016

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Following revelations that shareholders in Indian companies were being disadvantaged by private equity promoters SEBI, India's Securities and Exchange Board is looking to cut down on unfair practices.

In a consultation to change to its Listing Rules SEBI said that it had been found that certain private equity firms had entered into side agreements with top personnel and key managerial personnel of a listed companies. The agreements allotted shares on a preferential basis and would share a certain portion of the gains above certain threshold limits.

while it is not unusual for private equity funds to incentivise promoters, SEBI added that without any prior shareholder approval of such schemes,  it did give rise to concerns that such practices could potentially lead disadvantage outside shareholders.

SEBI is therefore proposing changes to its listing rules which require directors to seek approval from the board and shareholders before entering into profit sharing deals with third parties. If shareholder approval is not received these agreements must be discontinued the SEBI has proposed.

The deadline for comments on this change is 18th October and they can be emailed to cfd@sebi.gov.in.

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