TCS IPO: Lead Managers Seek Sebi Nod For PNs

Mumbai, June 27 | Updated: Jun 28 2004, 05:57am hrs
Book running lead managers of Tata Consultancy Services initial public offer (IPO) have sought the Securities and Exchange Board of India (Sebi) nod to issue participatory notes (PNs) to overseas investors. This is to ensure the smooth sailing of the countrys largest ever IPO.

Earlier, Sebi had granted such a permission in the public issue of ONGC.

A top Sebi official said: No decision has been taken as yet in the case of the TCS issue on whether to allow the BRLMs to issue PNs to overseas investors.

Sebi sources said overseas investors are even today allowed to invest in the domestic primary issue through the PN route. However, the existing norms dont permit lead managers of the offer to issue PNs.

PNs are instruments used by foreign funds not registered in India, for trading in the domestic market. PNs are like contract notes and are issued by registered FIIs to their overseas investors, not eligible to invest in the Indian stock markets for want of registration with Sebi.

FIIs invest funds on behalf of such investors, who prefer to avoid making disclosures required by various regulators. The investors, who buy these notes, deposit their funds in the US, European or Asian operations of the FII, which also operates in India. The FII then buys stocks in the domestic market on behalf of these investors on their proprietary account.

Explaining the reason for selective permission by Sebi, investment banking sources said, allotment of shares to the qualified institutional buyers (QIBs) category in an IPO is on a discretionary basis and the market regulator suspects that BRLMs may use the PN route to their advantage by issuing the same to their associates as the allotment to this category of investors in on discretionary basis.

This move by the lead managers to approach the market regulator also follows an earlier statement made by Sebi chairman GN Bajpai following Oil and Natural Gas Corporations (ONGC) offer for sale. Mr Bajpai had said that henceforth Sebi will clear all such requests on a case-to-case basis.

Sources at the BRLM to the TCS issue said: The PN route allows us to widen the investor base and big issues like this (TCS) requires wider participation. The PNs route played a crucial role in the success of the countrys largest public offer, that of ONGC, which was worth Rs 10,000 crore.

In the offer for sale of ONGC, more than 40 per cent of QIBs investments came through the PNs route. In the ONGC offer 50 per cent of the total offer for sale was reserved for QIBs.

The BRLMs to the TCS issue are JM Morgan Stanley Private Ltd, DSP Merrill Lynch Ltd and JP Morgan India Private Ltd. JM Morgan Stanley, one of the three BRLMs, filed the offer document with the market regulator on June 10.