The Securities and Exchange Board of India (Sebi) on Tuesday made it easy for the government to quickly tap major institutional investors to sell up to 10% of its stake in listed public sector companies. The government needs to earn R40,000 crore from its disinvestment programme within March 2012 to keep a grip on the slipping fiscal deficit.
The Sebi board introduced a concept of institutional placement programme (IPP) that will allow a promoter to either issue fresh equity or dilute its holding by up to 10% of the total equity. A press note issued after the meeting said this can be used ?only for the purpose of complying with minimum public shareholding requirements?.
The offer can be made only to qualified institutional buyers and there will be a reservation of minimum 25% to mutual funds and insurance companies. The issuing company will have to announce an indicative floor price or price band at least one day prior to the opening of the offer.
This is the second time after 2006, when Sebi has introduced new forms of tapping the market to promote depth in the Indian share market.
In that year it introduced a concept of Qualified Institutional Placement, under which a domestic listed company was allowed to raise capital from the markets without the need to submit any pre-issue filings to Sebi.
As part of its attempts to broad-base the allotment, Sebi has also mandated that there has to be at least 10 allottees in every IPP issuance and also that no single investor will receive allotment for more than 25% of the offer size. The allotment can be made on price priority, proportionate or on pre- specified criteria.
For offer for sale, Sebi has clarified that only the promoter or promoter group of companies, which are active/eligible for trading, will be permitted to offer their shares for sale. While the stock exchanges have been directed to offer a separate window for the same, the offer has to be at least 1% of the paid-up capital of the company, subject to a minimum of R25 crore.
Apart from use for compliance with minimum shareholding requirements, this method can be used by promoters of top 100 companies (based on average market capitalisation) for sale of their stake, added the Sebi circular.
Every bid will have to be required to be backed by 100% upfront cash margin while the allotment will be done either on price priority or clearing price basis proportionately.
The move was largely expected as the government is finding it difficult to meet its target of R40,000 crore by way of share sales in public sector companies in the current financial year. In FY12 till date, the government has managed to raise only R4,578 crore through its follow-on public offering (FPO) in Power Finance Corporation.
The government was banking heavily on ONGC’s FPO. It had planned to offload 5% through the share sale and mop up around R12,000 crore. The FPO was called off at the eleventh hour as the government developed cold feet because of renewed turmoil in global equities.
Other possible share sales planned for FY12, include Bhel, SAIL, National Buildings Construction Corporation and Rashtriya Ispat Nigam. Bhel and SAIL together would help mop up about R8,000 crore, while Ispat would help raise R1,000 crore.