Promoters may rush to exit Benami deals 

THE coming days could see a flurry of clandestine deals, as many Indian promoters with between 15% and 25% stakes in their firms transfer shares from benami accounts back to their own names. They will have to do this before the proposed takeover code comes into force later this year.
The trigger is the recommendation in the proposed rules, which says that only promoters with 25% or more holding be allowed to buy 5% more annually.
Close to 300 companies mostly mid-and- smallcap on the Bombay Stock Exchange, or BSE, have a promoter holding of between 15% and 25%.The Securities and Exchange Board of India, or Sebi, has invited public comments on the proposed takeover rules by August 31,and is expected to announce the new set of rules by end-September. Promoters holding stakes between 20% and 25% would now use the creeping acquisition route to increase their stake beyond 25% before the new law comes into force, said Girish Vanvari, executive director, KPMG India.
If they are smart (promoters holding between 15% and 25%),they would try to consolidate their holdings before the new rules come into effect, said Sandeep Parekh, founder, Finsec Law Advisors, and former executive director of Sebi.
Under current regulations, any investor holding more than 15%,but less than 55%,can acquire 5% through open market purchases every year, without having to make an open offer. But some market participants feel that even if the promoters start buying shares from the open market, the impact will not be felt on share prices. Often in companies where promoters hold a low stake legally, there is another chunk of shares that is held in benami accounts, said a fund manager at a domestic mutual fund.
There are several instances where fund managers foreign and domestic strike negotiated deals with promoters to buy large blocks of shares. The promoter sells the shares from his benami accounts to the fund house, sometimes at a slight discount to the market price, and at other times, at a premium.

Economic Times, New Delhi, 22-07-2010