The Securities and Exchange Board of India (Sebi) on Tuesday made relaxations to the offer for sale (OFS) and institutional placement programme (IPP) mechanisms to help companies smoothly conduct share-sales to achieve the required minimum 25 per cent public shareholding requirement.
To help companies sell shares in more tranches, Sebi has reduced the mandatory 12-week gap required earlier between sales. Promoters would now be able to sell shares using the OFS or IPP routes with a gap of just two weeks.
Further, the capital markets regulator has provided institutional investors an option of bidding with 'ad hoc margin'. Earlier, investors had to apply with a 100 per cent upfront margin in cash, said to be a big dampener. The ad hoc margin will be determined by the stock exchanges.
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To make the bidding process more transparent, Sebi has said modification or cancellation of bids will not be allowed during the last 60 minutes from the close of the bidding session, instead of only the last 30 minutes. It has also said the indicative price would now have to be given an hour before the bidding close, even if the issue was not fully subscribed. Earlier, stock exchanges were allowed to disclose the indicative price, the average bidding price, only once the book was fully subscribed.
Gesu Kaushal, executive director, Kotak investment banking, said: “The changes were required for these products to work. Relaxations to upfront margins’ requirement and deletion of the price band from the notice are encouraging.”
Sebi has also done away with compulsory announcement of a floor price. The regulator has said if a seller wants to disclose the floor price, they can do so a day before the share-sale starts. Earlier for share-sales under the OFS route, companies had to compulsorily announce the floor price two days before. It was observed in cases like Oil and Natural Gas Commission, that after the announcement of the floor price, the secondary market price used to be impacted, which made the issues unattractive.
The minimum offer size for OFS and IPP shall now be Rs 25 crore. Issues of lower than Rs 25 crore will also be allowed to achieve minimum public shareholding in a single tranche. Earlier, the offer size had to be the higher amount of one per cent of market capitalisation or Rs 25 crore, which bankers said was a hindrance for large-sized issues.
Greater scrutiny
To improve the quality of financial reporting and remove deficiencies in the current system, Sebi has decide to revamp the process for filing of audit reports by listed companies. The regulator has decided to create an Institute of Chartered Accountants of India (ICAI)-backed Qualified Audit Report Review Committee (QARC). This committee will scrutinise audit reports with qualifications or accounting irregularities.
Under the new mechanism, companies will have to file their annual audit reports with stock exchanges along with applicable forms. The form will depend upon the qualification given by the auditor, typically like 'matter of emphasis' or 'subject to'. The exchanges will then do that first-level scrutiny and refer these reports to QARC.
“Cases wherein the qualifications are significant and the explanation given by the company is unsatisfactory would be referred to the Financial Reporting Review Board (FRRB) of ICAI. If ICAI-FRRB opines that the qualification is justified, Sebi might mandate a restatement of the accounts of the entity and require the entity to inform the shareholders of this by making the announcement to stock exchanges,” the regulator said on Tuesday.
“Companies tend to ignore auditors’ remarks and qualifications by simply giving a management justification, without taking steps to rectify the accounts. As a result, these qualifications keep cropping up repeatedly, year-after-year, in the auditors’ reports. This move will put a stop to that practice, while encouraging management to take auditors’ qualifications seriously,” said Shriram Subramanian, founder and managing director of InGovern Research Services, a corporate governance research firm.
Changes to infra IPOs
To bring infrastructure sector Initial Public Offerings (IPOs) at par with those from other sectors, Sebi has said, “It has been decided to modify the minimum subscription requirements for companies coming out with IPOs to state that the minimum subscription shall not be less than 90 per cent of the offer, subject to allotment of a minimum 25 per cent or 10 per cent, as the case may be, of the securities offered to the public.”
Investment bankers said the exemption given to infrastructure IPOs with regard to minimum subscription and dilution requirements have now been done away with.
E-voting compulsory
Following the Budget proposal, Sebi has made electronic voting compulsory for the top 500 listed companies. Henceforth, companies while passing any resolution, along with a postal ballot, will have to provide the option of e-voting for shareholders. E-voting, considered more cost-effective and accurate compared to a postal ballot, was voluntary so far and only a handful of companies had used it.
