A slew of decisions taken by the Securities and Exchange Board of India (Sebi) on Thursday, including a new takeover code, should resuscitate the mutual fund industry and make life easier for small investors. The capital markets regulator also decided to release the order of the two-member report on IPO irregularities to the National Securities Depository Limited (NSDL) for compliance and approved rules for setting up infrastructure debt funds.
The new takeover code will allow acquirers to buy up to 25% of the equity of a firm before they are required to make a mandatory open offer to minority shareholders of the target firm. The decision is in line with the recommendation of the Takeover Regulations Advisory Committee (TARC) which had suggested raising the threshold from the prevailing level of 15%.
In another major decision that will make takeovers a tad more expensive for acquirers but more investor-friendly, Sebi decided that an acquirer will have to mandatorily make an open offer for 26% of the equity of the target company. TRAC had suggested that the open offer should be made for 100% of the equity, a far higher size than the prevailing 20%. In another decision, also favourable to minority shareholders, Sebi heeded TRAC?s suggestion to scrap the non-compete fee paid by acquirers to the sellers; this was allowed up to a maximum of 25% of the negotiated price.
?We reached the 26% number for the mandatory open offer because that would allow most of the minority shareholders to tender their shares,? Sebi chairman UK Sinha observed, pointing out that average promoter holding in companies today is around 50% while the minimum float needed to be 25%. Said Cyril Shroff, managing partner, Amarchand Magaldas: ?I have always believed the open offer should be for 100% because that?s the international norm but I do recognised financing deals in India is a big issue because of regulatory issues. So I can empathise with the decision but there should have been a road map because it?s not sustainable in the long run.?
In a set of moves that will make life easier for retail investors, the capital market regulator announced that an individual would need to comply with only one uniform set of KYC (know your customer) norms across financial products.
The mutual fund industry should get a boost with Sebi saying that distributors can charge a transaction fee of R100 for an investment of R10,000 in MFs. If the investor is investing for the first time, the distributor can charge R150.
Sebi will also issue guidelines for alternative investment including wealth management soon.
?The idea is that distributors should be compensated and we would like to specially compensate those agents who can get investments from new investors,? Sinha observed, adding that information showed that investments in mutual funds in smaller towns have come down.
?The key challenge has been to attract small investors into funds and towards that objective, incentive of R100 is an excellent move,? said Milind Barwe, managing director, HDFC Mutual Fund. ?The move to regulate larger distributors is also a good move because it will help achieve better selling practices,? Barwe added.
Small investors will also benefit from a shorter and easier-to-fill form while applying for an initial public offer (IPO). The forms may also contain more relevant information on pricing and valuation. Moreover, offer documents will be made easier to comprehend with more relevant information arranged systematically.
?The small investor needs to be better informed and to that extent, the information in the prospectus should be arranged in the proper order with the details of the promoters coming in first,? observed Prithvi Haldea, CMD, Prime Database.