At the end of the day, it is sentiment and the state of liquidity that determine flows into markets but revisiting the rules never hurts. In the latest round of regulatory reform, the Securities and Exchange Board of India (Sebi) has tweaked several norms relating to anchor investors, Offers for Sale (OFS), minimum floats for PSUs and others and bonus shares; all of these are welcome changes and will make it easier for companies to mop up money while creating a more level-playing field between state-owned and private sector players.
Giving anchor investors a bigger quota of 60% within the QIB (Qualified Institutional Buyers) segment?50% of the issue?is a good way to enthuse marquee funds who can now hope for more shares through a discretionary allotment. Moreover, it will also raise the comfort level for other investors since a third of the book would have been built even before the issue opens for subscription. Again, Sebi?s decision to open up the OFS route to an additional 100 companies will help many more promoters offload shares through this mechanism. The OFS route is a transparent one and preferable to a block deal; indeed, an auction is always a good way to discover prices. The regulator has reserved 10% of an OFS for small investors which will give them a chance to participate in the offerings.
The primary market should also get a big boost from the change in the norms relating to the minimum float. Promoters of smaller companies who were reluctant to list on the exchanges might rethink their decisions now that the issue size for companies with a valuation of less than R4,000 crore can either be R400 crore or a fourth of the equity, whichever is smaller. The earlier norm required that a company with a valuation of less than R4,000 crore needed to offload 25% of its equity. This had prompted several companies, which should ideally have commanded a post-issue market valuation of less than R4,000 crore to push up the value to more than R4,000 crore since that required them to offload just 10% of their paid-up equity. If Sebi?s fiat that state-owned firms need to offload at least 25% of their equity so as to ensure enough of a float is complied with, some R60,000 crore of stock could find its way to the market. In their current mood, merchant bankers believe there will be enough takers for both PSU and other shares and they could be right; nevertheless, the thought of so much paper hitting the market is somewhat disconcerting.
