Calculations upset, Sebi told, as bearish market turns up.
The pricing formula for private placement, announced by the Securities and Exchange Board of India (Sebi) in August 2008 to help promoters mobilise resources through the equity route in a bearish market, is now proving a major road block for many companies.
Due to the sharp rise in share prices of many companies, the minimum benchmarked price (an average of the past two weeks) under the Sebi formula has increased significantly. These companies cannot issue new shares below the average price, while investors want a lower price, as the current one is a result of temporary exuberance caused by the election result.
Sources said some leading foreign investment bankers, who are advisors on some of these private placements, have already approached the regulator to increase the two-week period to four or five weeks, so that the average price comes down. However, sources in Sebi said it had refused to accept the new demand. “The new formula has not even completed one year,” the regulator told these bankers.
In August 2008, after receiving comments from various parties, Sebi had stipulated that pricing of qualified institutional placements (QIPs) be based on an average share price of two weeks prior to the issue. Before this, the pricing formula was based on an average price of six months or 15 days, whichever was higher.
Citing the case of Housing Development & Infrastructure Ltd (HDIL) and GMR Infrastructure, a leading investment banker said the average price of the past two weeks is 5-10 per cent above the last day’s closing price. Institutional investors are finding it difficult to justify an investment higher than at the current market price.
“If the investors invest at the average of the last two weeks’ price, their net asset value of investments would declined overnight, as the current market price is lower,” said a senior official of a private equity firm. “In a situation like this, it is better to wait for some more time and allow the price to settle, so that an average price aligns with the current market price,” he added.
GMR Infra has planned to mop Rs 5,000 crore through the QIP route. Bankers said the average price is around Rs 168 a share, while the current price is below Rs 160. Similarly, HDIL plans to raise around Rs 3,000 crore and the share was last traded at Rs 256 each, against the average price of around Rs 290 per share.
Buoyed by the success of Unitech, DLF and Indiabulls Real Estate, more than 30 companies have proposed to raise a total of Rs 40,000 crore through QIP routes in the past month.
