Private deals of PE funds, promoters come under the scanner

The Dollar Business Bureau

As a measure against the secret profit sharing agreements signed between private equity funds and promoters of listed firms, SEBI has made it mandatory for the parties involved to take prior approval of the board and public shareholders before getting into any such pact.

This was announced during the meeting of the board which underlined the need for such disclosure as it has been found that private equity funds enter into compensation agreements with promoters, directors and key managerial personnel of listed investee companies, based on the performance of such companies.

The new guidelines will apply to employees, including key managerial personnel and directors of listed companies, for themselves and on behalf of any other person.  It was also brought to light that such pacts signed during the past three years from the date of notification will need to be communicated to the stock exchanges for making the information public.

The meeting notified that the stock exchange would need information on the existing agreements inked prior to the date of notification and which may continue to be valid beyond such date. This will then be put up for approval wherein an ordinary resolution would be passed by public shareholders in the forthcoming general meeting. The voting will not be open to people involved in the transactions.

These guidelines are a result of the concerns raised by SEBI board in September regarding private equity funds incentivising promoters, directors and key managerial personnel of listed investee companies for personal gains.