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Sebi may tweak share sale norms

Samie Modak/Mumbai 26 Jun 12 | 12:40 AM

The capital markets regulator, Securities and Exchange Board of India (Sebi), is likely to ease rules governing the offer for sale (OFS) and institutional placement programme (IPP) to help companies meet next year’s public shareholding deadline. According to sources, the matter will be taken up at Sebi’s board meeting, to be held tomorrow.

IPP and OFS are the two new share sale tools introduced by the regulator in January, primarily to help India Inc increase their public float.

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As the regulator is not in favour of extending the public shareholding deadline of next year, it wants to iron out any issues that may exist with these routes.

  • Norms for offer for sale and institutional placement programmes likely to be eased 
  • Move comes in an effort to help companies meet the 2013 deadline
  • By June 2013, listed firms from the private sector need to have minimum 25% public shareholding and state-owned firms a minimum 10% public float by August 2013
  • Relaxations to be made based on the feedback received from market players
  • Sebi likely to relax the mandatory 12-week time gap requirement between two IPPs
  • Investment bankers say the 100% cash margin requirement is a deterrent, mainly for foreign investors

The government has set a deadline of June 2013 for private companies to have a minimum of 25 per cent public shareholding. State-owned companies will need to have minimum 10 per cent public float by August 2013.

The relaxation will be done based on the feedback Sebi has received from market players. Based on operational difficulties faced while conducting share sales using these routes, investment bankers have made representations to Sebi to reconsider some of the norms like the 100 per cent margin requirement and the mandatory time gap required between two IPP issues.

Investment bankers say the 100 per cent cash margin requirement is a deterrent, mainly for foreign investors, because of currency volatility and uncertainty of allotment.

However, a senior Sebi official, on condition of anonymity, said the scope for substantially reducing the 100 per cent margin requirement is limited, as trades carried out under such routes are not backed by stock exchanges settlement guarantee.

Among other things, the regulator is likely to relax the mandatory 12-week time gap requirement between two IPPs. Reduction of the time gap will help companies conduct share sales in more tranches depending upon the market conditions and investor appetite.

Some of the other things that market players have sought relaxation on include the minimum investor criteria, price band option for OFS and more transparency in book-building. According to current rules, companies have to announce a floor price two days ahead of the OFS issue and revision of the floor price isn’t allowed, which market players want to be tweaked.

During bidding, the indicative price is made public once the issue is fully bid, which creates a lot of uncertainty, they say. Also, the requirement to have a minimum of 10 investors and allotment of not more than 25 per cent to a single investor makes conducting share sales difficult. Market players said they were satisfied with the introduction of these new fast-track routes but wanted Sebi to make these more “market-friendlier".

For paring promoter holdings, earlier companies only had the option of follow-on public offerings, which took an average of three months to complete. In comparison, OFS and IPP processes can be completed between one and three weeks.

The companies which have conducted share sales through these two new routes include ONGC, Wipro, Godrej Properties and DB Corp. There are about 180 more listed companies with more than 75 per cent promoter holding, which will have to offload shares worth Rs 25,000 crore.

Despite several entities lobbying for relaxation of the deadline, Sebi has so far maintained it won’t be extended.

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