Minimum free-float market cap for public companies could be lowered from Rs3,000 crore to Rs2,000 crore
Mumbai: The capital markets regulator is planning to relax rules for publicly traded companies to raise money through fast-track follow-on public offerings (FPOs) and rights issues, which is likely to benefit the government preparing to sell stakes in state-run companies as part of its asset-sale programme.
The Securities and Exchange Board of India (Sebi) is looking to cut the minimum free-float market capitalization requirement to about ₹ 2,000 crore from ₹ 3,000 crore for listed firms to be eligible to raise money through fast-track FPOs and rights issues, according to two people familiar with the regulator’s plans.
“The aim is to reduce the timeline to encourage more listed firms to raise money through public issuances," said the first person, declining to be identified. “Once the minimum market cap requirement is reduced not only more companies will become eligible to access the fast-track route to raise money but also the time spent to secure a regulatory clearance will be saved as under the fast-track norms listed companies are not required to file a prospectus with Sebi."
Sebi’s plan to relax norms for FPOs assumes significance in the backdrop of the Narendra Modi government’s plans to increase participation of retail investors in stake sales in state-controlled firms and eventually in the overall stock market.
“Initially, it may only help PSUs (public-sector units). Unlike in the case of FPOs, retail investors are not comfortable with methods like OFS (offer for sale) for buying shares," said Prithvi Haldea, chairman and managing director, Prime Database, a New-Delhi based market tracker.
“Whatever is the new threshold that Sebi fixes, it will ensure that almost all PSUs are covered for fast-track issuances."
Sebi had in 2012 lowered the threshold of free-float market capitalisation for issuers to access the market through fast-track FPOs and rights issues to ₹ 3,000 crore from ₹ 5,000 crore.
Primary market activity have been lacklustre over the past four years. As compared with 33 IPOs worth ₹ 5,885.67 crore in 2011-12, there was only one IPO in 2013-14 worth ₹ 919.14 crore and only one so far in the year beginning 1 April worth ₹ 181.25 crore.
Similarly, compared with 16 rights issues each in 2011-12 and 2012-13 worth ₹ 2,374.95 crore and ₹ 8,944.69 crore, respectively, there were only 13 issues worth ₹ 4,573.26 crore in the year ended 31 March and only four worth ₹ 714.64 crore in the current financial year.
FPOs have fared worse. There was only one FPO worth ₹ 4,578.2 crore in 2011-12 and two in 2013-14 worth ₹ 7,455.96 crore. There was no fund raising through FPOs in the previous and current fiscals.
Companies outside government control will still prefer to raise money by selling shares to institutional buyers, as they are not looking to expand their investor base, said Haldea. In the case of rights issues, Sebi should be more careful about easing norms, he said.
“While reducing the threshold for rights issues, Sebi should ensure as a safeguard that the promoters should not be allowed to renounce. Otherwise promoters of every company irrespective of their quality will get a chance to dump their shares on small shareholders," Haldea said.
Sebi is also looking at reducing the post-issue listing timeline, one of the two people cited above said.
Currently, a company takes 11 days to get its shares listed on an exchange after the closure of the public issue. Haldea said the availability of multiple methods of payments to buy and sell shares in public issues might be a hindrance in reducing this listing timeline.
“Right now only corporates and HNIs (high networth or wealthy individuals) are required to use ASBA (application supported by blocked amount). If we make ASBA mandatory for retail investors as well, the issuer will get the payments for offered shares on day one itself and would not have to wait for cheque clearances to allot shares. This may significantly reduce the time taken by a company to list its shares on an exchange after the public issue. It may bring down the post-issue listing period significantly," said Haldea.