Investment bankers plan to approach the Securities and Exchange Board of India (Sebi), for relaxation of rules relating to the the institutional placement programme (IPP) and offer for sale (OFS) to achieve next year’s public shareholding deadline.
Bankers will ask Sebi to relax certain norms like the 100 per cent upfront margin requirement, time gap between two IPPs and some norms on issue pricing and disclosures.
Currently, investors are required to cough up the entire investment amount, which according to bankers is a deterrent. “The 100 per cent cash margin is draconian. It’s unfair as there is a currency risk involved and allotments are not guaranteed. The regulator should look at a more practical approach for taking payments from investors,” said S Ramesh, chief operating officer, Kotak Investment Banking ,at a conference hosted by The Institute of Company Secretaries of India.
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Bankers will also ask Sebi to take another look at the rule which seeks a company to have a minimum 12-week gap between two IPPs. According to bankers, the time gap should be reduced to three or four weeks as the deadline is less than 14 months away.
The market regulator is expected to have considered the recommendations made by bankers. “Sebi is aware of the difficulties faced by intermediaries. We are looking into aspects to make it more market-friendly and also more board-based to increase investor participation,” said a senior Sebi official.
Bankers also want Sebi to extend the option of price bands for OFS. At present, under the OFS route, companies have to announce a floor price a few days in advance, while the IPP route gives an option of either announcing a floor price or a price band.
According to bankers, whenever a company announces a floor price, the secondary market price tends to fall, which makes the issue unattractive. This was seen during the ONGC share sale. Shares of ONGC had dropped below the floor price in the secondary market, which kept many investors away and, eventually, the issue had to be bailed out by state-run Life Insurance Corp. Investment bankers say the floor price announcement should be allowed on the day of issue. They are asking Sebi to reconsider minimum investor criteria.
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An IPP issue needs to have a minimum of 10 investors and allotment to one investor cannot exceed 25 per cent.
The requests are based on operational difficulties faced by bankers while conducting the share sale of ONGC, Wipro and Godrej Properties — the three companies which have used the new routes so far.
In January, the market regulator had introduced these two new mechanisms for share-sale to aid listed companies in complying with public shareholding norms. The new routes were introduced as fast-track ways to carry out share sales. For paring promoter holdings companies earlier only had the option of follow-on public offering (FPO), which takes an average of more than three months to complete. Meanwhile, the OFS and IPP process can be completed in three weeks and one week respectively.
Currently, there are about 180 private companies that have promoter holding of more than 75 per cent, who will have to offload shares worth Rs 27,000 crore. While there are another 16 PSUs with government holding of more than 90 per cent which will have to sell securities worth Rs 12,000 crore to meet the shareholding requirement. Sebi has set a deadline of June 2013 for all private sector companies and August 2013 for all PSUs to meet these norms.