Sebi relaxes OFS norms to push public shareholding

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SummaryThe Securities and Exchange Board of India has allowed institutions to bid for share in an offer for sale without paying any upfront margin.

The Securities and Exchange Board of India (Sebi) has allowed institutions to bid for share in an offer for sale (OFS) without paying any upfront margin. Such bids, however, cannot be cancelled or modified, a rule aimed at weeding out applicants who are not serious but seek to attempt to manipulate the subscription data.

According to Sebi, the new rules would co-exist with the current practice of institutions submitting bids backed by at least a 25% margin. Last year, Sebi allowed stock exchanges to decide on an ad hoc margin for applicants who did not want to bid with 100% margin. This ad hoc margin was typically fixed at 25%. Sebi has also said that the indicative price of an OFS and the order book will be visible during the trading session.

The board of the capital market regulator met in Chennai on Friday and decided on further relaxing the OFS rules to maker it easier for companies to comply with the minimum public shareholding norms wherein the promoter holding has to be reduced to 75% (90% in the case of government-owned entities).

While announcing the new norms, Sebi chairman UK Sinha stressed on the fact that the deadline of June 2013 for complying with the public shareholding norms is “sacrosanct” and even the government has agreed to abide by the requirements.

“I can share with you that we have received confirmation from the government that it is very keen to complete the transactions with regard to PSUs and they will not be seeking any extensions,” Sinha said. Incidentally, the deadline for PSUs is August 2013.

Meanwhile, the regulator has also made a few amendments to the new takeover code, which was implemented less than two years ago. The changes were the result of the feedback received from industry players after the new code was notified.

Sebi has tweaked the norms to decide on the relevant date for making public announcement and determining the offer price in cases of more than one mode of acquisition and also in case of preferential allotment. The regulator has also aligned the disclosure requirements under the takeover code and the insider trading regulations.

The Sebi chairman also amended the norms for infrastructure debt fund (IDF) to make it more acceptable to industry players. While Sebi has allowed the tenure of the scheme to be extended along with the new fund offer period, it also gave the go-ahead for foreign institutional investors and registered non-banking financial companies to be included in the scope as strategic investors.

Currently, infrastructure finance companies registered with RBI as NBFCs, scheduled commercial banks and international multilateral financial institutions are only allowed as strategic investors in an IDF.

The regulator has also allowed IDFs to invest up to 30% of their assets under management (AUM) in assets not below investment grade owned by their sponsor/ associates (increased from the earlier 20%). This will be subject to the condition that the sponsor/associate retains at least 30% of the assets sold to the IDF till the assets are held in the portfolio.

The regulator has also decided to amend the regulations for broker and sub-broker registration to allow banks to be registered as “proprietary trading member” to participate in the debt segment. This in line with a recent notification by the RBI.

This has been done to develop the corporate bond market and encourage trading on the stock exchange platform, stated a Sebi release. Apart from banks, the new category of membership would also be applicable for primary dealers, pension funds, provident funds, insurance companies and mutual funds.

The regulator has also allowed partial two-way fungibility of Indian depository receipts (IDRs) to provide liquidity in the domestic markets. Sebi will notify guidelines providing a detailed roadmap for the future IDR issuances as well as for the existing listed IDRs, stated the Sebi release.

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