The government on Thursday relaxed the pricing norms for issue of convertible bonds and equity shares under depository receipts to overseas investors. The move will enable Indian companies to price their shares more closely to prevailing market prices.
The finance ministry has changed the definition of the relevant date and the way base pricing is calculated for issue of foreign currency convertible bonds (FCCBs) and equity shares under global depository receipts (GDRs) and American depository receipts (ADRs).
Now, the relevant date for computing the issue price is the day on which the company’s board of directors decides to issue shares to foreign investors. Previously, it was thirty days prior to the date on which the shareholders’ meeting was held, which takes a long time after the board’s decision is taken.
The second change relates to the issue price. Now, companies can price their issues based on the average of the weekly high and low of the two weeks prior to the relevant date. Previously, it was either the weekly average of the last six months before the relevant date or the weekly average of the two weeks immediately preceding the relevant date.
Industry lobbies were demanding a change in the pricing norms because in a bearish market, like the current one, where stock prices fall sharply, the issue price is much higher than the current market price.
Now with the changes introduced, the issue price will be much closer to prevailing share prices, leading to a greater chance of success in attracting overseas investors.
On November 15, the Reserve Bank of India (RBI) permitted Indian companies to buy back their FCCBs with fresh foreign exchange resources or external commercial borrowings (ECBs). The move came after current share prices were trading at a sharp discount to the conversion price of FCCBs.