The far-reaching changes proposed by the Securities and Exchange Board of India should give a fillip to capital market activity in the country. The regulator has mandated disclosures for IPO-bound companies in the form of key performance indicators and price per share of issuers based on past transactions and fundraising.
Contrary to expectations, these disclosures will be applicable to all companies, and not just new-age technology or loss-making ones. This takes away the possibility of any ambiguities cropping up in the future from companies claiming that they are ‘non-tech’ or ‘profitable’ for a certain period. The regulator has been pushing for more disclosures in the offer documents for quite some time now through observations and informal advisories to merchant bankers. These have now been formalised.
Will the additional requirements compel some start-ups to look at overseas listings? Not necessarily. Overseas listings, too, come with its own set of stringent disclosure requirements and obligations. Blue-chip issuers and start-ups may, instead, choose the route of confidential filings, which has now been allowed by the Sebi board. This effectively gives the issuer a window to test the waters for a filing without letting in competition on sensitive financial information.
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Non-promoter shareholders offering shares through the offer for sale (OFS) mechanism no longer have to hold a minimum of 10% in the company to offload the shares. All shareholders holding Rs 25 crore and more will be eligible. Retail investors have been allowed to bid for the unsubscribed portion of non-retail segment. These measures will significantly boost the OFS segment, especially for voluminous deals. This will particularly benefit consumer-facing companies and public sector undertakings that seek wider retail participation. Shareholders looking to offload shares through block deals may also increasingly opt for the OFS route.
The other change that will benefit PSUs is the scrapping of the requirement of calculating 60 days’ volume-weighted average price for determination of open offer price during disinvestment. The Sebi board approved the proposal to introduce monitoring of utilisation of issue proceeds raised through Preferential Issue and Qualified Institutions Placement (QIP) through CRAs as monitoring agencies for issue size exceeding Rs 100 crore. This will help shareholders know the status on fund utilisation vis a vis the disclosed objective. On the flip side, this could broaden the due-diligence obligations of a merchant banker or law firms and impact issue timelines. At present, issuers seeking the approval of shareholders simply provide a broad bucket of objects when they pass a resolution.
Alternative investment fund regulations have been amended to prescribe the timeline for declaring ‘first close’ of a scheme along with the minimum corpus at which the first close may be declared. The tenure of close ended schemes of AIFs shall be calculated from the date of declaration of first close. This is welcome as regulations were silent on when a fund needs to be launched or complete its first close after it is registered with Sebi. As this paper had reported, the regulator had found that 300-odd schemes received their commitments and investments more than five years after they were first registered with Sebi. The regulator’s move to bring mutual funds under the ambit of insider trading regulations has been generally viewed unfavourably, especially because it seems to be the result of misdeeds committed by a single fund house. It would be interesting to see if the regulator will eventually trim the long list of people that are deemed as ‘connected persons’ under this law.