Mumbai: Capital market regulator Securities and Exchange Board of India (Sebi) on Monday cleared the decks for initial public offerings (IPOs) by life insurance firms, but the much-anticipated changes in the takeover code weren’t approved by the watchdog as discussions at its board meeting remained “inconclusive".

Sebi chairman C.B. Bhave said apart from adhering to the extant norms that are sector neutral, domestic life insurers will also be required to disclose risk factors specific to insurance companies and an overview of the insurance industry in general, while raising money through a public issue.

There are 23 life insurers in India with at least 12 trillion in assets.

Private insurers such as Reliance Life Insurance Co. Ltd, ICICI Prudential Life Insurance Co. Ltd and HDFC Standard Life Insurance Co. Ltd have announced plans to tap the capital market.

Investment bankers say there wouldn’t be any significant progress on this unless the Insurance Bill, which proposes to increase the foreign direct investment (FDI) limit from 26% to 49%, is passed by Parliament.

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The Insurance Regulatory and Development Authority (Irda) had earlier submitted its report on draft IPO guidelines to Sebi, seeking the market regulator’s recommendations.

While approving the recommendations of the Sebi committee on disclosures and accounting standards, the market regulator said life insurers will also be required to disclose financial information in the formats specified by Irda and disclose the glossary of terms used in the insurance sector.

It has exempted such insurers from the appointment of a monitoring agency. They would need an Irda disclaimer in the offer documents.

A similar model was followed for public sector banks when they tapped the market in the mid-1990s.

“Sectoral regulators can prescribe their own rules. For issues over 500 crore, a monitoring agency needs to be appointed. This requirement has been done away with for insurance companies. In addition, there are some sector specific disclosures which these companies need to make," Bhave said.

The final IPO guidelines will be issued by Irda after taking Sebi’s recommendations into consideration.

“Sebi has taken the first step. Irda may specify some additional requirements for companies going public. It may also consider some changes in norms regarding the requirement of number of years of operation for an insurer coming out with an IPO. I am sure that the government will find a way out to tackle the technical issue regarding" increasing the FDI limit in insurance, said Malay Ghosh, managing director and chief executive officer of Reliance Life Insurance.

Takeover code

The discussion on the takeover code was postponed to the next board meeting. It was not immediately known when the board will meet again.

“It was felt that some more time is required. The committee had suggested an entire set of regulations. On none of those (regulations) was the discussion conclusive. We will continue the discussion in the next meeting and hopefully make a decision. Thereafter, we will take action and amend the regulation," Bhave said.

Asked whether the finance ministry’s views would be sought before finalizing the takeover norms, Bhave said: “Everyone’s view will be taken, including the government, members’, before we come to a decision. But we are not going to discuss what was discussed in the board meeting."

Both the finance ministry as well as the Reserve Bank of India have their nominees on the Sebi board.

Retail limit doubled

In a significant move that could ensure higher retail subscription in public floats, Sebi has doubled the limit of retail investment to 2 lakh.

Typically, 35% of an issue is kept for retail investors, but most of the issues do not get adequate response from this class of investors although institutional investors lap them up.

The retail portion of Coal India Ltd’s IPO was subscribed 2.2 times.

The doubling of the retail subscription limit assumes significance in the backdrop of large public issues, especially those by state-owned companies that are being lined up. Several large public issues from state-owned firms such as Steel Authority of India Ltd, Oil and Natural Gas Corp. Ltd, Hindustan Copper Ltd, Power Grid Corp. of India Ltd and Indian Oil Corp. Ltd are being planned as part of the government’s divestment programme in fiscal 2011.

Preferential allotment

In its effort to tighten preferential allotment norms further, Sebi said that if a promoter has previously subscribed to the warrants of the company, but failed to exercise them, the promoter will not be eligible for the issue of equity shares or convertible securities or warrants for one year.

Additionally, if any member of the promoter group has sold shares in the previous six months, the person would not be eligible for allotment on a preferential basis.

In order to enable investors to manage their cash flows efficiently, Sebi has mandated companies to have a pre-announced date for the payment of dividends and credit of bonus shares.

The capital market regulator is also working on a framework for rights issues of Indian depository receipts (IDRs) to facilitate simultaneous offers by foreign issuers who have listed their IDRs on domestic bourses.

Postal insurance

Sebi also accorded qualified institutional buyer (QIB) status to insurance funds set up by the department of posts such as Postal Life Insurance Fund (PLIF) and Rural Postal Life Insurance Fund (RPLIF). The postal life insurance has over 15 million policyholders.

PLIF and RPLIF managed 14,000 crore and 4,000 crore, respectively, as of March 2009. The latest figures are not available.

The QIB status will allow these funds to participate in equity offerings.

Typically, 50% of an IPO is reserved for QIBs.