CDSL issue may get delayed as SEBI asks promoters to cede special rights

The initial public offering of depository services provider CDSL seems to have been delayed due to securities market regulator SEBI asking promoters (in this case the BSE) and major shareholders to give up their special rights ahead of the IPO, according to SEBI sources.

Though SEBI issued final observations on February 8, clearing the road for CDSL’s IPO, it has specifically asked for promoters/major shareholders to give up their special rights so that every shareholder post the IPO is on an even keel.

Tejesh Chitlangi, Partner, IC Legal, said, “The SEBI ICDR Regulations require the shares issued in an IPO to rank

pari passu with the existing shares in all respects. Accordingly, SEBI is within its authority to ask promoters to give up preferential rights held by them with respect to their shareholding, prior to the IPO.”

This could delay the IPO as CDSL cannot embark on roadshows for marketing the issue to institutional, high net worth and retail investors without resolving the issue. (Special rights to majority shareholders such as promoters, and strategic PE investors include board representation, special quorum requirements and affirmative voting rights on specific matters, both at the board and shareholder meetings.)

Deadline

CDSL is bound to complete its IPO by March 31, following a SEBI direction of April 2012, whereby no stock exchange can hold more than 24 per cent in a depository. SEBI had given three years to exchanges to dilute their stakes.

This was extended by another two years in April 2015.

CDSL filed its draft offer document for an IPO (which was estimated to be worth over ₹400 crore) on December 27, 2016. This was an offer-for-sale of about 3.51 crore shares (about 33.65 per cent) by its existing shareholders, such as BSE, SBI and Bank of Baroda.

The top 10 shareholders of CDSL as on December 24, 2016, include BSE (50.05 per cent), SBI (9.57 per cent), HDFC Bank (7.18 per cent), Standard Chartered Bank (7.18 per cent), Canara Bank (6.45 per cent), Bank of India (5.57 per cent), Bank of Baroda (5.07 per cent), LIC (4.15 per cent), Union Bank (1.91 per cent) and Bank of Maharashtra (1.91 per cent).

However, the jury is still out on whether CDSL will be able to successfully list on the National Stock Exchange as India’s first listed depository by March 31.