Mumbai: Companies selling securities to institutional investors will now have to disclose details of the transactions, India’s capital markets regulator said on Friday.
A company making a qualified institutional placement (QIP) will have to provide the stock exchanges with details of its shareholding before and after the sale, Securities and Exchange Board of India (Sebi) said.
The QIP details will be made available on the website of the stock exchange where the firm is listed.
Sebi’s latest move is aimed at allaying concerns on the identities of investors in a QIP and the utilization of money raised through this route.
As the Indian economy recovered from a slowdown, cash-strapped firms—mostly in construction and real estate—turned to QIPs to access funds. Between April and February, 60 QIPs were issued, raising a total of Rs41,552.19 crore for the issuing firms.
“Many companies, especially in the real estate sector, have been using the QIP route to fund some of their own subsidiary firms,” said an official who handles such placements for a securities firm.
“With the existing norms, it becomes difficult to find out the actual identity of the investors as the underwriters often portray themselves as the investors,” he said, but declined to be named citing the sensitivity of the issue.
He also pointed to the practice of large hedge funds and foreign institutional investors parking funds in QIPs, only to exit in as little as a month’s time.
“This is unhealthy as large sell-offs can affect the market movement,” he said. “Sebi’s move will ensure transparency in such transactions.”
Brijesh Mehra, head of investment banking at Royal Bank of Scotland, said Sebi’s move is “not necessarily a negative for all the QIPs. The shareholding details are made public every quarter anyway. This is just accelerating that process”.
Sebi has advised stock exchanges to ensure that the details of QIP allottees that buy more than 5% of the securities offered are disclosed. The exchanges have to inform Sebi of the status of implementation of the order in their next monthly development reports.
The move is likely to ruffle a few feathers. Many companies favour raising funds via QIPs to minimize disclosure requirements, expenses and paperwork, which are typically higher in equity issues such as initial public offers.