SEBI cracks down on Gillette for not diluting promoter holding

The Securities & Exchange Board of India on Friday froze a little over 55 per cent of the combined voting rights of Procter & Gamble and Saroj Kumar Poddar in Gillette India.

The stricture was passed as the promoters of the shaving products major had failed to comply with the 3 June deadline for listed companies to raise the minimum public shareholding to 25 per cent.

The promoters, including P&G, together hold 88.8 per cent in Gillette India and were required to dilute 13.8 per cent of their in the company to raise the public shareholding to the desired level.

Gillette India's promoters and directors are now barred from dealing in the securities markets; and SEBI also imposed a freeze on all corporate benefits for failing to comply with the minimum public shareholding norms.

The order follows the disposal of Gillette's appeal by the Securities Appellate Tribunal (SAT) on 3 July against a previous decision by SEBI rejecting which had rejected Gillette's proposal to reclassify Indian promoters as non-promoters.

The regulator has also restrained the directors of the company from holding any new position in listed companies till the company brings down the promoter holding to the mandatory 75 per cent.

Whole-time SEBI member Prashant Saran ordered a direct freeze of voting rights and corporate benefits such as dividend, entitlements to rights and bonus shares, and stock splits to the extent of the excess of proportionate promoter/promoter group shareholding in Gillette India till such time that they complied with the public shareholding rule.

Procter & Gamble holds 75.9 per cent in Gillette India. S K Poddar and his associates hold 12.9 per cent.

Under SEBI rules, the ratio of promoter and public shareholding must be 75: 25, or 3:1. Since the public shareholding in Gillette is only 11.2 per cent at present, the voting rights of the promoters will be capped at three times that level - that is, 33.6 per cent.

That means the voting freeze on the Gillette India promoters will apply to the proportionate excess stake of 55.2 per cent. Under the formula enunciated by Saran, the voting freeze will apply to 47.18 per cent of P&G's stake and 8.02 per cent of Poddar's.

The order said the action taken today was without prejudice to the right of SEBI to slap a monetary penalty, initiate prosecution proceedings, move the Gillette scrip to the trade-to-trade segment, exclude it from the futures and options (F&O) segment, or take any other action that the regulator might consider appropriate.

The order comes just two days after the Securities Appellate Tribunal (SAT) rejected Gillette India's plan to raise public shareholding to the desired level because it termed the scheme dubious.

The scheme ignored ''all other perfectly executable methods suggested by SEBI in various circulars over the past few years'', the SAT ruled.