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Since 2012, shares worth Rs 48,457 crore have been sold by listed companies through the offer-for-sale (OFS) route, an alternative to the follow-on public offering (FPO), according to data from Prime Database. These include Wipro, ONGC, Reliance Power, Blue Dart, Eros International, Adani Power, Mahindra Holidays, Sun TV and others. However, retail investors have not been able garner any shares in these companies.
The reason is, these companies used the OFS route, which had no specific quota for retail investors. So, though allowed to apply, they were crowded out by large institutional players. The companies which took the OFS route had to conform to the guidelines of Securities and Exchange Board of India (Sebi) that mandated listed companies maintain a minimum public shareholding of 25 per cent for private companies and 10 per cent for public ones. As a head of a brokerage house says: "It was a faster route because many private and public sector companies had to meet the July 2013 deadline and retail investors ended on the losing side because they had no role to play. OFS was a big boys' club."
| PROVIDING AN ANCHOR TO INVESTORS? |
Anchor investor explained
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The market regulator has now corrected this anomaly. On Thursday, Sebi announced a 10 per cent quota for retail investors in OFS. It also expanded the list of companies in this regard to the top 200 by market capitalisation. Since OFS is allowed for listed firms and will serve as a substitute for FPOs, this means a retail investor will have several information points to help take a decision. For instance, the historical performance of the stock, management details, dividend history and so on.
Best, the process will become much simpler and, perhaps, cheaper. Earlier, to participate in an FPO, one had to get an online or offline form, apply through a broker, give to a bank and so on. Now, if a retail investor has a demat account, he/she can simply ask the broker to bid and will get the shares in line with the allotment within the 10 per cent quota.
As financial planner Rishi Nathany says: "The cost for the retail investor will be 0.25 per cent that the investor will pay to the broker. Importantly, the deal will be struck within a day or two. On the other hand, if the retail investor would have applied through the FPO route, he would have to keep the money locked in the bank for 15 days."
What will make the process more investor-friendly is that Sebi has recommended to the Union Ministry of Finance that even public sector companies have a minimum public shareholding of 25 per cent and suggested this be achieved in three years. If accepted, the government will have to divest its stake in a lot of companies - Coal India, Central Bank, NMDC, National Aluminium, etc. There are estimates that the government will have to divest $9-10 billion (Rs 60,000 crore at the rate of $1=Rs 60) in the next three years.
Another proposal by the regulator is to raise the anchor investor's quota to 60 per cent of the institutional bucket from the present 30 per cent. What makes this interesting is that the market regulator is bringing in some safety net for investors through this route. "By increasing the anchor investors' quota, the market regulator is giving the investors some additional protection, which will give them more confidence," says Anish Thacker, tax partner, Ernst & Young.
However, some also question whether the retail investor does really need a protection in the form of a higher quota for anchor investors. As anchor investors will need to hold the shares for a month, a higher quota will ensure there isn't too much price volatility till they are invested. "When the anchor investor exits, there could be some volatility, sometimes high as well, but there will be enough takers for good stocks," says another investment banker.
V K Sharma, head of private wealth, HDFC Securities, says while this is a good thing for the public, investment bankers might not be too happy because a high allocation for anchor investors will limit their ability to get big investors into the issue.
The question remains whether the retail investor needs to be protected, as, ideally, when they are participating in equities, they are linking themselves to the fate of the firm. The problem is that when they are investing in small companies for a quick buck, they tend to burn their fingers. Providing them some safety net would only make them bolder and they might be lured by brokers.
The advice for them is to stay away from such stocks, even if there are anchor investors. Another important Sebi move is to start sharing the know-your-customer (KYC) data with other regulators. With the Insurance Regulatory and Development Authority initiating the process of dematting insurance policies, the coming together of all financial transactions under one platform will help in both saving costs and eliminating the requirement for doing a KYC for every financial transaction.
