SEBI outlaws ‘unfair’ PE profit deals

The Securities and Exchange Board of India, the country’s financial regulator, has banned “unfair” profit-sharing agreements struck between private equity funds and promoters of listed firms behind closed doors.

From January 9, arrangements entered into by key managerial personnel, directors, or promotors of listed funds must have approval of the board and shareholders of the listed firms, to avoid what the regulator says is “unfair practice.”
The rule has been introduced retroactively and applies to any agreements entered into in the past three years.

“PE firms won’t be disadvantaged by this new rule. However, owing to the retrospective applicability of the regulation, shareholder approvals and dissemination to stock exchanges of such agreements will be required. This is likely to hamper day to day operations of companies, in the short term, at least,” Kaustubh George, a senior associate at law firm Squire Patton Boggs, told pfm.

The regulation should improve corporate governance, by increasing transparency, in listed companies, he added.

The rule is part of India’s extensive Listing Obligations and Disclosure Requirements Regulations of 2015. It’s entry into force follows SEBI’s public consultation on incentivising promoters, directors and CEOs of portfolio companies.