SEBI Board Meeting
Securities and Exchange Board of India in its Board Meeting dated August 16, 2012 has taken certain important decisions, to bring about various reforms in the Primary Market, to re vitalize the MF industry, to regulate the persons/ corporates giving investment advises & also for amending the disclosure requirements for issuance of debt securities. The gist and summary of the important decisions is given below:
1. Reforms in the Primary Markets
With the intent to revitalise the markets, SEBI has approved a host of reforms, most importantly being approval to the concept of e-IPOs, allowing Bonus & Rights Issues as a mode to reach the Minimum Public Shareholding.
The gist of the major decisions is as follows:
A. For enhancing the participation of retail investors:
With a view to increase the reach of IPOs to investors across the country and affording minimum allotment to a larger number of applicants, the following measures have been approved:-
To widen the distribution network of IPOs, the nationwide broker network of stock exchanges at more than 1000 locations will be made available for distributing IPOs in electronic form. The facility of ASBA will also be extended to applicants coming through this mode.
The reach of ASBA would be enhanced by mandating all ASBA banks to provide the facility in all their branches in a phased manner.
The share allotment system will be modified to ensure that every retail applicant, gets allotted a minimum bid lot. The minimum application size for all investors is also being increased to Rs. 10,000-Rs.15,000, which at present is Rs 5,000- Rs 7,000/-.
B. For facilitating capital raising by issuers
The gist and summary of the reforms that have been approved relating to SCRR is given below:-
To facilitate FPOs & Rights Issues through the Fast Track mode, the requirement of average free float of market capitalization has now been reduced from Rs. 5000 Cr. to Rs. 3000 Cr.
Subject to a cap of 10%, the professionals/ technically qualified entrepreneurs who are unable to meet the requisite 20% contribution by themselves as promoters, are now allowed to meet the same with the Alternative Investment Funds such as SME Funds, Infrastructure Funds, PE funds, etc.
To facilitate companies to reach minimum public shareholding requirements prescribed under SCRR, additional routes including Rights and Bonus Issue have been permitted.
Changes upto 20% in the amount proposed to be raised, as given in the objects of the issue at the RHP stage, as against the existing 10%, will not necessitate re-filing with SEBI.
To facilitate QIPs even in a falling market, issuers will be allowed to offer a maximum discount of 5% to the price calculated as per the SEBI Regulations.
Listed entities can now file a comprehensive annual disclosure statement in addition to the existing requirements on the lines of 20F filing prescribed by the US SEC.
C. For enhancing market integrity and Investor confidence
The following reforms relating to market integrity and investor confidence have been approved:-
Now, only issuers with a minimum average pre-tax operating profit of Rs. 15 Crore will be able to come through the ‘profitability route’ and other issuers will access the capital market either through the SME platform or compulsory book building route with increased QIB participation of 75%, as against the existing 50%.
SEBI has put in a place a framework for rejection and faster clearances of draft offer documents In order to reduce repeated queries and resultant delays in dealing with DRHPs by SEBI.
Additional mechanisms will be introduced for monitoring the issue proceeds No withdrawal or lowering the size of bids will now be permitted for non-retail investors at any stage.
The price band alongwith relevant financial information shall be published atleast 5 working days prior to opening of the issue.
'General Corporate Purposes' as an object of the issue would not exceed 25% of the issue size in order to bring more transparency in capital raising. At present, there is no such cap.
The Listed entities will have to mandatorily frame employee benefit schemes only in accordance with SEBI (ESOS and ESPS) Guidelines, 1999. Any Schemes not in compliance with the same will be provided time to align with the same. Furthermore, it has been decided that such Schemes will be restrained from acquiring their shares from the secondary market.
2. Steps to Re-energize Mutual Fund Industry
With the intent of achieving sustainable growth of the mutual fund industry and mobilization of household savings for the growth of the economy, SEBI has decided to develop a long term policy to re energise the MF Industry, which primarily cover the following major aspects:
- Increase in penetration of MF products and energizing distribution network;
- Improve reach of MF products in smaller cities/ towns (beyond top 15 cities);
- Alignment of interest of investors, distributors and AMCs;
- Investor protection – issues of mis-selling and churning;
- Strengthening regulatory framework for mutual Funds;
- Rajiv Gandhi Equity Savings Scheme (RGESS);
- Long Term Measures
3. Regulations on Investment Advisors
The Board approved the SEBI (Investment Advisors) Regulations, 2012 (“Investment Advisors Regulations”) thereby providing a framework for registration and regulation of Investment Advisors (“IA”). Detailed provisions have been introduced relating to the Investment advisors, their responsibilities/ duties/ registrations required, consideration to be received etc.
Certain exemptions have also been provided, excluding professionals like CAs/ lawyers/ Stock Brokers/ Portfolio Managers/ Merchant Bankers etc, giving advice incidental to their primary activities, from the category of “Investment Advisors”.
4. Amendment of SEBI (Issue and Listing of Debt Securities) Regulations, 2008
The amendments to Schedule I of SEBI (Issue and Listing of Debt Securities) Regulations, 2008 have been approved by SEBI.
These are with respect to the Disclosure Requirements in the Offer Documents/ Memorandum in connection with Public Issue or Private Placement of non convertible debt securities, which are listed or proposed to be listed:
The following additional disclosures are needed to be made:
- Details of changes in capital structure over the last five years.
- Details of corporate guarantee and commercial paper issued
- Details of default and delay in payment on borrowings over the last five years
- Particulars of trustee, auditor, arrangers, registrar and rating agency
- Details of whether debt security is backed by guarantee or letter of comfort, where applicable
- Copy of consent letter from debenture trustee
- The format of presenting financial information, history of equity share capital details and term sheet has been standardized.
- In case of frequent issues through private placement, an enabling clause for a shelf placement document with a validity of 180 days has also been provided for.
In our view, the decisions taken by SEBI are surely going to make an impact on the positive development of the markets. Of all the decisions taken, the introduction of e-IPOs was a very prime one and can boost up the investment possibilities. Further, the next most important decision taken was the decision to allow 2 additional modes for compliance with Cl 40 A of Listing Agreement. This was the much awaited and most talked about discussion point in the past few days. With less than a year left to comply with the Minimum Public Holding norms, these 2 additional methods of Rights Issues and Bonus Issues, would surely bring a respite for the Companies that were finding it difficult to come out with FPOs/ OFSs/ eOFS/ e IPPs.
Many of the Companies were finding it difficult to opt for any of the already specified modes and were thus not able to comply with the requirement. Now, these simplified modes of Bonus Issue/ Rights Issues, will assist such companies to timely comply with the provisions of Cl 40 A.
The Board has also discussed the possibility of specifying other options for non compliant companies to reach the threshold minimum public holding. This of course, would be subject to appropriate checks and balances.
It has also been discussed that suitable modifications may be brought to the existing prescribed methods to comply with Cl 40 A of the Listing Agreement.
All these decisions should collectively boost up the Primary Markets and assist the Investors to take well informed and conscious decisions.