Regulations and guidelines rarely classify companies. Each company, regardless of size or track record, is required to follow the same set of guidelines. Moreover, no regulator finds it easy to give up regulatory powers. But the fast track issuance of securities (FTIS) scheme, announced recently by Sebi clearly demonstrates that it is willing to give up some power for the sake of a better marketplace.

This new scheme is a bid to provide India?s already-listed companies a faster and cost-effective method of raising capital from the domestic market. Only India?s top listed companies would be entitled to the benefits of this scheme, to begin with. This would include all companies that have been listed with NSE and/or BSE for at least three years and which have enjoyed an average free float market capitalisation of at least Rs 10,000 crore over the past year.

Besides this, to ensure that this huge relaxation is enjoyed only by credible companies, Sebi has stipulated that such companies should have had an excellent track record in redressing shareholder grievances, should have been fully compliant with the stock exchange?s listing agreement, and should have the entire stake of the promoters in dematerialised form. Moreover, trading on the stock exchanges should have constituted at least 2% of the total listed shares during the previous one year, Also, the impact of auditors? qualifications, if any, in the audited accounts should not exceed 5% of the net profit/loss after tax. Finally, there should be no pending prosecution proceedings or show cause notice issued by Sebi against the company, its promoters or wholetime directors.

For such companies, there would be a rationalised system of disclosures as well as simplified procedural requirements. For one, the stock exchanges shall give in-principle approval based on the board/shareholders? resolution approving the raising of capital and making of the issue. For another, the prospectus/letter of offer prepared by the lead managers shall be filed with Sebi and the stock exchanges only for record purposes. The company would be allowed to proceed with the issue after filing the same with Sebi and getting an in-principle approval from stock exchanges, subject to the waiting period, if any, under the Indian Companies Act. If there are any further material developments in the issue, the lead manager would need to promptly disseminate the same to the public at large by way of a public notice.

Currently, the offer documents of all follow-on offerings need to be filed with Sebi, and the regulator issues an observation letter within a period of 30 days from the date of filing, after its review and processing procedures. As such, an offer document for a follow-on public offering (FPO) undergoes the same rigour of processing as an offer document for an initial public offering (IPO).

The new guidelines come in recognition of the fact that trades worth thousands of crore occur daily in the secondary market based on the continuing disclosure requirements, and this makes the existing Sebi clearance process meaningless. It is well recognised that it is IPOs, not FPOs, that present a big challenge to the market and its regulatory system. Disclosures and review assume paramount importance only because so little is known in the public domain about the company seeking funds. Over the years, the disclosure requirements for IPOs have improved dramatically, and this needs to be an ongoing process. However, once the company is already listed and traded, IPO-type disclosures and approval processes are more cumbersome than helpful. Sebi?s move to streamline FPO processes, then, will make the domestic market more attractive for seasoned companies that had begun displaying a preference for raising capital overseas.

This relaxation is also in recognition of the fact that market timing is of the essence. For a seasoned company, it should be very simple and fast to raise capital. It was precisely in this context that, last year, Sebi had introduced a new instrument?qualified institutional placement (QIP), which allows listed companies to make issuances to qualified institutional buyers with limited processes and disclosures. This instrument has already been used by a very large number of companies. The new move would hopefully help in preventing the export of our capital market, thereby providing the local market more depth and liquidity. The new relaxation would also attract some companies now to do an FPO rather than a QIP, thereby giving an opportunity to small investors to also participate. In an earlier move, in March 2006, Sebi had amended the guidelines rationalising the disclosure requirements in the prospectus/letter of offer filed by listed companies which meet the conditions of regular filing with stock exchanges during the previous three years and have a satisfactory investor grievance redressal system.

The message from Sebi appears to be clear?if a listed company is willing to be compliant and is of interest to investors, it would make life easier for them in terms of the regulatory processes. Even in the present case, depending upon the experience with top listed companies, the market may expect further relaxations from Sebi. A lower threshold would be a good idea.

?The author is MD, Prime Database. These are his personal views