Promoter-PE pvt deals come under Sebi lens

Mumbai: Concerned by violations of corporate governance norms by promoters and directors of listed companies, markets regulator Sebi on Friday said it will soon release a consultative paper dealing with the issue of their agreements for compensation with private equity players. Of late, there have been cases where PEs entered into agreements with top officials of companies in which they have invested for monetary rewards in case those companies gave superior returns.
The markets regulator is proposing that all such existing agreements, which are mostly kept secret from a majority of shareholders and not disclosed to the exchanges, should be made public in a time-bound manner.Also, any such agreement in future should have shareholder approval. “When such reward agreements are executed without prior approval of shareholders, it could potentially lead to unfair practices,” Sebi said in a release.
TOI had reported that in its edition on October 31, 2015 that in March of that year, Ajay Bijli — MD and promoter of theatre chain PVR — was paid at least Rs 3.64 crore as incentive by a fund managed by Multiples PE. The payment had accrued to Bijli under what a PVR spokesperson had termed as “reward letters” issued by Multiples, although papers relating to the deal showed the monetary compensation was based on a pact titled ‘Incentive Fee Side Agreements’.
This reward scheme allowed Bijli to get 20% of the excess profits earned by Multiples over and above a 30% internal rate of return it generated on its Rs 115-crore investment in PVR, made in 2013. The company had also said it did not disclose the deal to shareholders after it obtained opinion from top lawyers who had said there was no violation of the rules from non-disclosure.
Sebi’s thinking on this subject is that information about such deals should be made public to shareholders and if they approve of such deals, then the company can go ahead. “All we are asking is disclosures of such private deals,” a top regulatory official said.