India’s stock market regulator has just made follow-on public offers easy for companies with a track record of good governance. Apart from serving as an incentive or reward for best-in-class corporate governance practices, this also removes the need for such firms to tap overseas markets to raise money because of the delay involved in getting regulatory approval for a follow-on public offer. The board of the regulator met in Mumbai on Wednesday.
According to a person familiar with the development who did not wish to be identified, the board of the Securities and Exchange Board of India (Sebi) gave its go-ahead to a plan whereby listed companies which meet the specified criteria will be given speedy approvals. Currently, a listed company wishing to raise additional funds from the Indian capital markets waits at least two months for regulatory approval. Companies often choose to raise money from global markets as this is quicker. Overseas, the process can be completed in half the time.
Sebi’s spokesperson said that there “is no official announcement from Sebi after the board meeting today”.
Last year, in a move to accelerate the fund-raising process, Sebi allowed companies to raise money from institutional investors through a private placement, or through qualified institutional placements. It usually takes three weeks after the shareholders’s approval to raise money through this route. But the new guidelines will help companies tap retail investors as well.
“Cutting short of the timeline will be a positive move for Indian markets and will encourage more Indian firms to look at follow-on offers in the near future,” said S. Ramesh, chief operations officer Kotak Investment Banking.
According to the person close to the development, the board also gave approval to National Securities Depositaries Ltd (NSDL) to act as a data warehousing agent for pension funds. The pension fund regulatory development authority had given the licence to NSDL to act as a central record-keeping agency for the new pension plans which are yet to sanctioned.
However, according to NSDL officials, Sebi had initially raised objections saying that current regulations do not allow the depositary to take up any other activity besides share registry. NSDL also handles the tax information network of the income tax department.
The Sebi board also gave a go-ahead for delisting guidelines to be codified as the regulations, said the person. However, it is not known whether any amendments have been made to the current guidelines.
The current delisting guidelines that allow companies to get delisted through a reverse book building method has been debated for a while. Reverse book-building involves shareholders offering to sell their shares back to the company at a certain price; this can be an expensive process for the company.
“It’s a unique law, which doesn't have a precedence in any other market. The shareholders quote the price at which they want to be bought out” said Somasekhar Sundaresan, partner at J. Sagar Associates, a Mumbai-based law firm.