Minimum market-cap requirement halved
Less than a week after the government announced a bigger disinvestment programme, the market regulator today introduced a significant change in the way institutional bidders invest in follow-on public offers by allowing allotments through auctions.
The Securities and Exchange Board of India (Sebi) has amended the Issue of Capital and Disclosure Requirements Regulations (ICDR) to allow pure auctions for qualified institutional investors (QIBs) in follow-on public offerings to begin with. The method may be later extended to initial public offerings.
Under the new method, bidders will be free to bid at any price above the floor price. At present, allotments are made at the floor price. Retail investors, however, will be allotted shares at the floor price.
The board also decided that the issuer is free to place a cap either in terms of the number of shares or percentage to issued capital of the company so that a single bidder does not garner all the shares on offer, ensuring a wider distribution of shareholding.
| On helping India Inc raising resources |
| * QIBs will be free to bid at any price above the floor price in follow-on public offerings |
| * Issuer free to place a cap either in terms of the number of shares or percentage to issued capital of the company |
| On greater transparency |
| * Listed companies furnish audited or un-audited balance sheets on a half-yearly basis within 45 days from the end of the quarter instead of the current yearly basis |
| On share allotments to employees |
| * Ceiling of Rs1 lakh on the value of allotment can be made to an employee |
| * Reservation up to 5% of the post-issued capital instead of 10% of the issue size at present |
Jagannadham Thunuguntla, CEO, SMC Capitals, said this means an institutional investor can continue to bid above the floor price and the QIB allotment will be made to the highest bidder.
“The intent is to enable companies to mop up more funds. Earlier, even when there were huge subscriptions and huge demand for an issue, the company could not get more money. This becomes more relevant in the context of the recently announced divestment plans and FPOs by the government for public sector units," he said.
"Auction for QIBs is welcome as it would allow risk-taking entities and not just the promoters to be a part of the price discovery process, ” Prithvi Haldea, MD, Prime Database, said.
A Sebi release issued after the board meeting also said the minimum market capitalisation required by listed firms to sell shares in follow-on offerings has been halved to Rs 5,000 crore from Rs 10,000 crore. “This applies to all listed companies,” Sebi Chairman C B Bhave said.
The market regulator has also mandated that listed companies furnish audited or un-audited balance sheets on a half-yearly basis within 45 days from the end of the quarter instead of the current yearly basis.
This means Indian companies, which disclose only interim financial numbers during unaudited quarterly results, will also be required to disclose balance sheet items. Shareholders would be able to access the statement of assets and liabilities of the company and its solvency position on a half-yearly basis. Internationally, most countries follow this practice.
A more frequent disclosure of the asset-liability position of companies would assist the shareholders in assessing the financial health of the companies, thereby helping them in making informed investment decisions, analysts said.
On reserving shares for employees, the Sebi board decided to put a ceiling of Rs1 lakh on the value of allotment that can be made to an employee and to permit reservation up to 5 per cent of the post-issued capital instead of 10 per cent of the issue size as at present. The board also decided to extend reservation to employees along with a rights issue.
Currently, there is no ceiling on the number of shares that could be allotted per employee.
The regulations also provide for a discount of up to 10 per cent of the issue price to retail investors and shareholders but not to employees.
Talking about peer review of listed companies in the Nifty and the Sensex basket, Sebi Chairman Bhave said the regulator had completed examining the books of 47 companies after the Satyam scam and has not spotted any discrepancies, while four remain to be checked.
