Chennai/Mumbai: In a bid to help listed firms comply with norms on minimum public shareholding, the market regulator on Friday relaxed the margin requirement for institutional investors in so-called offer-for-sale (OFS) issues.
Following a board meeting in Chennai, the Securities and Exchange Board of India (Sebi) said it has also tweaked certain sections of the new takeover rules to make their implementation easier and relaxed the existing norms for infrastructure debt funds, or IDFs, and Indian depository receipts, or IDRs.
Sebi said that in OFS issues, in which promoter shares are sold through auctions on exchanges, a modification would be allowed if institutional investors place their bids with 100% upfront margin. However, if they do not pay the upfront margin while placing orders, the bids cannot be lowered.
At present, all investors are required to pay the upfront margin and the bids cannot be modified later, which acts as a deterrent.
Also, all the bids placed by OFS investors and the indicative cut-off price will now be made visible on the exchanges during the offer, which typically takes place during normal market hours.
“The introduction of bids without margin is a very positive step forward towards making the OFS process even more investor friendly,” said Sanjay Bajaj, managing director and head, equity capital markets, HSBC India. “Further, the visibility of bid quantity as well as the indicative price (of shares on OFS) throughout the trading session will bring in more transparency to the process and allow investors to place or revise their bids based on additional relevant information. Both the changes are very positive for OFS process and are likely to be received very positively by all market participants.”
While making changes to the new takeover norms, introduced in 2011, Sebi said it was concerned about the implementation of the new rules on Indian companies in the absence of clarity on the date of disclosure of the price of open offers and determination of their tenure.
In the case of preferential allotments, the date on which a company discloses information on an imminent preferential allotment on the exchanges will be considered as the date of open offer announcement and fixing the offer price for it, Sebi said. This, according to Sebi, will ensure that the transaction is not exposed to market risks if the stock price changes after the announcement of preferential allotment.
The capital market regulator also clarified that in the case of buybacks, when the voting rights of a shareholder go beyond the threshold that triggers an open offer, the shareholder will be given 90 days from the date of closure of the buyback offer to lower voting rights to avoid an open offer.
Sebi also removed the ambiguity in share acquisition periods during open offers. Currently, during an open offer, the takeover regulations allow the acquirer to purchase shares from stock exchanges where all transactions are required to be completed in two days, whereas the same regulations don’t allow the completion of the acquisition of shares until the expiry of the offer period.
All such acquisitions can, however, be completed after 21 days from the date of the public announcement. Sebi on Friday said that all market purchases by the acquirer can be completed during the open offer period and not merely in two days, if all such shares acquired are kept in an escrow account.
In order to encourage investments in infrastructure debt funds, the market regulator relaxed norms and said IDF mutual funds will also be allowed to invest the money they receive from pre-payments in the bonds of state-owned financial institutions and infrastructure finance companies, if the asset management company is unable to find enough core assets on which the fund is primarily based.
Sebi also allowed the extension of the tenure of an IDF scheme up to two years beyond the original term with the consent of two-thirds of investors, and included non-banking finance companies, or NBFCs, and long-term foreign institutional investors, or FIIs, as strategic investors in IDFs.
Also, the new fund offer (NFO) period for IDFs has been increased to 45 days from 15 days and private placements have been allowed as an alternative method of investment.
Similarly, in order to encourage more overseas-headquartered firms in India to launch more IDRs to boost secondary markets, Sebi allowed two-way fungibility of these instruments. Standard Chartered Bank is the only firm to have issued IDRs thus far. Several foreign firms have shelved plans to launch IDRs over concerns that the market is not liquid enough in the absence of two-way fungibility.
An IDR is a rupee-denominated instrument, like an equity share, in the form of a depository receipt created by a domestic depository against the underlying equity of the issuing company. It enables foreign firms to raise funds from the Indian capital market.
Two-way fungibility is the ability to purchase the existing shares of the issuer foreign company on foreign bourses where its shares are listed and deposit them into the IDR holding and vice-versa.
Any foreign firm with an existing business in India can float IDRs if it has a pre-issue paid-up capital and free reserves of at least $50 million, and its parent company had average market capitalization of at least $100 million over the previous three years.
Standard Chartered raised Rs.2,486 crore in its IDR offering in June 2010.
“In order to provide liquidity in the domestic markets, it has been decided to enable partial two-way fungibility of IDRs… Sebi will notify guidelines providing a detailed roadmap for the future IDR issuances as well as for the existing listed IDRs,” the regulator said in a statement.