Regulatory changes for related-party transactions to boost corporate governance: Fitch

Fitch Ratings on Monday said the recent changes by market regulator Sebi will tighten the rules governing related-party transactions and ease the delisting process.

The revised related-party transaction norms will widen the scope of scrutiny and limit the ability of large shareholders – often the founder family or promoters – to enter into such transactions without the approval of minority shareholders. This should strengthen the corporate governance of listed companies, it said.

The delisting changes should facilitate greater transparency and more effectively balance the interests of acquirers and public shareholders. They should also result in quicker execution, Fitch added.


"Recent changes made by the Securities and Exchange Board of India (Sebi) will tighten the rules governing related-party transactions (RPT) and ease the delisting process," Fitch Ratings said in a statement.

Last month, Sebi expanded the definition of the related-party transactions and has decided to make it easier for acquirers to delist equity shares after an open offer.

The revised delisting rules will allow an acquirer to announce its intent to delist the target company and disclose both the open offer price and the premium on the delisting price.

Fitch said if a sufficient number of shareholders choose to tender their shares, such that the delisting threshold of 90 per cent of shares is met, then they will be paid the delisting price. Alternatively, if the 90 per cent threshold is not met in the open offer, then only the open offer price will be paid and the acquirer will have 12 months to complete the delisting or reduce its holding to 75 per cent to comply with listing rules.

"This significantly reduces the uncertainty in the price discovery process for both parties compared with the current process," Fitch added.