SEBI Action Against Promoters Group Will Not Affect Business, Says Patanjali

The stock exchanges' decision to freeze its promoters' shareholdings will have no effect on the company's financial performance, according to Patanjali Foods Ltd.

India's stock exchanges—BSE and NSE—had frozen 292.58 million shares of promoter group entities of Patanjali Foods on March 15 for not meeting the minimum public shareholding norm within the stipulated deadline.

A total of 21 promoter entities' shares have been frozen by BSE Ltd. and the National Stock Exchange of India Ltd., the company said.

The exchanges have acted as per regulator SEBI’s master regulation, and as such, SEBI would not act on such individual cases.

Dismissing the SEBI's action as not material, Patanjali Foods said that the company is working on its compliance. The company also spoke about promoter shares being locked in for a period of one year since listing, which ends on April 8, 2023. "So, the instant action of stock exchanges does not appear to have any negative impact on the functioning and financials of the company," it said in a statement. Further, it said that its promoter equity shares are not pledged.

"The promoters are trying to take suitable steps to achieve the minimum public shareholding in a timely manner," the company said.

The company, earlier known as Ruchi Soya, had undergone an insolvency resolution process that was initiated by the National Company Law Tribunal in 2017. The resolution plan, as submitted by Patanjali Ayurved, received the tribunal's nod in 2019. After the resolution plan was implemented, Patanjali Foods' public shareholding contracted to 1.1%.

As per the rules mandated by the SEBI, a company that undergoes an insolvency procedure gets a period of three years to increase its minimum shareholding to 25%.

To comply with the norm, Patanjali Foods launched a follow-on public offer in March 2022. It succeeded in increasing the public shareholding to 19.18% as of Dec. 31 by issuing a total of 66.2 million shares. But couldn't increase its public shareholding since then. A failure to meet the deadline has led to the freezing of promoter shares.

Also, Sebi rules mandate that if the public shareholding falls below 10%, the same shall be increased to at least 10% within a maximum period of 18 months from the date of such fall.

"Owing to the Covid-19 outbreak and market conditions prevailing at that point in time, the public shareholding could not be brought up to 10% by June 18, 2021. The promoters are fully committed to the mandatory compliance of achieving MPS, exploring various ways and means to achieve it, and simultaneously ensuring that the interests of the public shareholders are appropriately protected. They are confident of achieving mandatory MPS within the next few months," the statement said.

Shares of Patanjali Foods declined 4.14% to Rs 924.45 apiece as of 12:25 p.m., compared with a 0.27% decline in the benchmark Nifty 50.