Sebi mulls lower entry level for fast-track issues

Written by Sourav Majumdar | Mumbai, Aug 27 | Updated: Aug 28 2008, 07:24am hrs
More relief may be round the corner for companies making public issues. After unveiling the twin measures of easing the pricing norms for qualified institutional placements (QIPs) and collapsing the rights issue timelines, market regulator Securities & Exchange Board of India (Sebi) is considering lowering the market capitalisation threshold for fast-track issuances by companies to make such issues easier to execute.

The regulator had, in August 2007, unveiled norms for fast-track issuance of securities (FTIs), a simplified process for making public issues, where it had set a condition that such issues would be allowed in the case of companies that had an average free float market capitalisation of at least Rs 10,000 crore or more during the previous year.

Companies and industry associations have petitioned Sebi to reduce this threshold to Rs 5,000 crore, so that the relatively small companies can find capital raising easier in the present choppy market conditions.

Confirming that Sebi had received requests and was looking into them, sources said: The argument for lowering this threshold is that Rs 10,000 crore is too high in these market conditions. Besides, those with Rs 10,000-crore market capitalisation do not always need to raise capital from the markets. They have other sources of funds. But a lower threshold will help a number of relatively smaller firms.

Under the FTI norms, the companies must be listed on the Bombay Stock Exchange or the National Stock Exchange (NSE) for at least three years, have an excellent track record in redressing shareholder/investor grievances, be compliant with the listing agreement, and the promoter groups shares are held in the dematerialised form. Another condition, among other things, was that trading on the stock exchanges should constitute at least 2% of total listed shares during the previous one year.

However, the choppy markets and the high market cap threshold have rendered such issuances difficult.

Companies qualifying for FTI would be eligible for rationalised disclosures and simplified procedural requirements. For instance, stock exchanges can give them in-principle approval based on the board resolution/shareholders resolution for approving the capital issue. The prospectus/letter of offer can be prepared by the lead manager as per the provisions of the Companies Act and the Sebi disclosure and investor protection (DIP) guidelines and can be filed with Sebi and the exchanges for record purposes. The lead managers can proceed with the issue after filing the offer document with Sebi and getting in-principle approvals from the stock exchanges subject to the waiting period, if any, as per the Companies Act.

Earlier this month, Sebi announced it was making changes to the pricing norms for QIPs to make them more realistic. It also reduced the rights issue timeline to 43 days from the current 109 days, and is reviewing the entire process.