Mumbai: India’s capital markets regulator is planning to create more avenues for listed firms to comply with the minimum public shareholding norms before the June deadline set by the Securities and Exchange Board of India or Sebi.
The regulator may soon enable preferential allotments and qualified institutional placements (QIPs), too, as legitimate routes to offload promoter holdings in publicly traded firms to comply with the minimum stockholding norms.
Sebi chairman U.K. Sinha confirmed this on the sidelines of a conference in Mumbai on Wednesday, adding that the regulator is also planning to simplify the norms under the existing routes to help companies meet the deadline.
The regulator is also reviewing the takeover regulations in the backdrop of evolving markets, said Sinha at the conference organized by Financial Planning Corp (India) Pvt. Ltd on financial sector reforms.
Sebi, while introducing the new takeover code in 2011, had mentioned that the new norms will be subject to a review every year. The regulator has started relooking at the implementation of the new takeover regulations as it was planned and, in a couple of months, there may be some changes in the applicability of the code, Sinha said. He did not provide details.
QIPs and preferential allotments are classified as private placements as the shares under these routes are typically sold to less than 50 selected investors, which is a threshold to make an issuance a public one. Preferential allotment is the sale of shares or convertible securities by a listed firm to a select group of persons, while QIP refers to a sale of equity shares to so-called qualified institutional buyers.
All listed firms that are outside government control need to have a minimum public shareholding of 25% before June, while state-controlled ones need to have at least 10% stake held by public before August. Choppy domestic equity markets have deterred firms from selling shares to pare their promoter holdings, either to raise money or to meet the public holding norms.
In February, Sebi had created two new routes—offer for sale (OFS) and institutional placement programme (IPP)—to help firms meet the public holding norms. Subsequently, in August, the regulator allowed firms to use rights and bonus issue routes to enhance the public holding. Gammon Infrastructure Projects Ltd, Pentokey Organy (India) Ltd and Westlife Development Ltd have issued bonus shares only to non-promoter shareholders to avoid the cost and effort of making a public issue of shares. In Gammon’s case, the promoter shareholding of 75.53% was just a tad higher than the prescribed limit and it made more sense to give non-promoter shareholders one bonus share for 34 held by them.
Since their introduction, there have been 23 OFS and two IPPs by Indian firms to pare promoter holdings. As many as 161 non-state owned listed firms have less than 25% public stake and 13 state-owned firms have less than 10% public stake till date. They need to sell Rs.30,000 crore worth of stock to achieve the stipulated public stockholding threshold.
Many promoters are still reluctant to pare holdings before the deadline, but Sebi said it will not extend it. Apart from allowing private placements, Sebi is looking at relaxing the norms under the existing routes for enhancing public holding base. “We are looking at simplifying routes,” said Sinha.
According to recent media reports, the regulator is working on ways to do away with the 100% upfront margin norm for institutional investors in OFS issuances. Currently, institutional investors bidding for shares through this route are required to pay the entire amount upfront. Sebi may relax this norm and reduce the margin requirement from such investors, while restricting any downward revision of the bids placed by them.
It may also allow bankers to display an indicative cut-off price on the exchanges based on the bids received during the share sale.