20.6.14

SEBI's booster dose

The Securities and Exchange Board of India approved a number of measures aimed at making it easier for companies to raise money as part of a significant push to rejuvenate the country's primary market. The measures approved by the board of the capital market regulator include easing IPO restrictions for issuers, doubling the investment bucket for anchor investors, allowing non-promoters to offload their stake through offers for sale and reserving 10% of issues for retail investors.
The regulator has also asked the government to lower its stake in state-owned companies to 75% versus the current 90% cap within three years, increasing the amount of shares that need to be held by the public. It also tightened rules for employee stock option plans or ESOPs and research analysts.
India's primary market has dwindled over the past few years despite various measures by the regulator to encourage investor appetite in public issues. The latest move comes as the secondary market is in the ascendant over optimism that the Narendra Modi government will implement policy measures leading to improved investor sentiment and an economic recovery after two years of below-5% growth.
The Sebi board also decided on Thursday that companies will need to dilute to the public a stake of 25% or Rs.400 crore, whichever is lower, if the market value is less than Rs.4,000 crore. Currently, companies have to sell at least 25% if the valuation is below Rs.4,000 crore, while those that exceed this need only divest a 10% stake in an IPO.
The regulator has also proposed “uniform“ public holding norms across all companies as it believes rules for the market should be promoter neutral.
Currently, private companies are required to have a minimum 25% public shareholding, while it's 10% for public sector undertakings (PSUs).
Sebi has told the government this is discriminatory and inconsistent with broader market design. It should, therefore, amend the Securities Contracts (Regulation) Rules to mandate state-owned companies to achieve at least 25% public shareholding within a period of three years.
That will result in a substantial amount of stock hitting the market, which will also mean a bonanza for the government as long as demand is buoyant.
In an attempt to increase the share of serious, committed participants, the regulator has enhanced the ability of long term institutional investors to participate more meaningfully as anchor investors in an IPO. It has doubled the anchor investor's bucket to 60% from the existing requirement of 30% of the institutional allocation.
The Sebi board, which met in New Delhi, has also empowered retail investors to participate in offers for sale (OFS) by reserving 10% of the issue size for them, enabled non-promoter shareholders to leverage the OFS mechanism and also expanded the universe of companies to the top 200 companies by market capitalisation from 100 now.
The regulator said sellers of shares may offer a discount to retail investors and in case the allocation is not fully subscribed the unutilised portion could be offered to other investors.
The regulator has also proposed to regulate individual research analysts and entities engaged in issuance of research reports or those that make “buy/sell/ hold“ recommendations on securities or public offers such as brokerage houses, merchant bankers and proxy advisors. It also imposed trading restrictions on research analysts.
The regulator has also tweaked rules on ESOPs and has prescribed strong measures to bring flexibility to the functioning of ESOP trusts and check misuse of such trusts at the hands of promoters by prescribing disclosures. One of the key measures prescribed is mandating the shares held by such ESOP trusts to be treated separate from “public“ or “promoter“ categories.

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