Mumbai: To boost primary markets, capital markets regulator Securities and Exchange Board of India (Sebi) on Thursday approved of the concept of anchor investors (AIs) in initial public offerings (IPOs).
It also abolished entry load on mutual fund (MF) schemes so that an investor can directly pay the distributor, and rationalized disclosure norms for rights issues.
For IPOs, Sebi said only qualified institutional buyers (QIBs) will be eligible to be an AI, and will get up to 30% of the portion reserved for QIBs. Under current rules, 50% of the total IPO size is reserved for QIBs.
AIs will have to invest a minimum of Rs10 crore, and “no person related to the promoter, promoter group and book running lead managers can apply as anchor investor”, Sebi said in a statement.
“The issuer will carry out a bidding process one day prior to the actual issue opening in order to decide the anchor investor,” Sebi chairman C.B. Bhave said. “The anchor investor will also bring in a margin of 25% on application, and immediately after the allotment, he will have to bring the remaining 75% within two days.”
The regulator also mandated that an AI’s shares be locked in for at least 30 days from the date of allotment.
Explaining the rationale, Bhave said: “The anchor investor is committing to contribute to x percentage of the issue even before the issue opens, so the idea was that this must not result in churning and a 30-day period was considered sufficient.”
Sebi also mandated that no listed firm could issue stock with superior voting rights in order to avoid misuse by persons with such shares.
The regulator also did away with entry load on all MF schemes to increase transparency in the payment of commission to distributors. The investor will directly pay the distributor. Sebi also made it mandatory for distributors to disclose the commission received by other MF schemes, and which ones they are distributing. This, according to Bhave, will “avoid conflict of interest and it will allow investors to understand why a particular scheme is being recommended to them”.
Arindam Ghosh, chief executive officer of Mirae Asset Management Ltd, said: “No entry loads for MFs is a landmark decision. It will revolutionize pricing and we will have to see how it plays out. This will change the revenue model for distribution houses.” Ghosh said around 85% of inflows into MFs is via third-party distributors.
“There might be some loss in the revenues in the short term. So distributors might focus on other products like PMS (portfolio management services) and insurance,” said Uttam Agrawal, head of MF distribution business at Bajaj Capital Ltd. “Investors also realize that there is no free lunch. Distributors will now have to give true advice to their clients and start charging for advice and services. We have to see how this will impact the revenue model—whether we’ll charge fees at the time of redemption or be on a retainership basis.”
Sebi also said it was rationalizing disclosure norms in rights issue offer documents. Last year, it reduced the time frame for a rights issue from 109 days to 43. The regulator on Thursday made it mandatory for unlisted firms making an IPO to list their securities on at least one stock exchange with nationwide trading terminals.
Sebi has also reviewed the holding period for shares offered for sale. Currently, a shareholder can only sell equity shares if he has held it for at least one year. However, the regulator has decided that “in case equity shares which are received on conversion of fully paid compulsorily convertible securities, including depository receipts, are being offered for sale, the holding period of such convertible securities as well as that of resultant equity shares together would be taken into account for the purpose of eligibility”.
Sebi has also brought down the fees by 50% charged to intermediaries such as brokers, derivative segment including currency segment trading members, mutual filing fees, foreign institutional investors (FIIs), sub-accounts of FIIs, foreign venture capital funds and custodians of securities.