The Securities and Exchange Board of India (Sebi) is set to relax rules governing offer for sale (OFS) to aid the government’s disinvestment process. The proposal will be on the agenda when the market regulator’s board meets on Thursday, two people with direct knowledge of the matter said.

The regulator also plans to spare non-banking financial companies (NBFCs) from having to disclose changes in shareholding due to encumbered or pledged shares, said the people cited above on condition of anonymity. The step is significant since mutual funds have increasingly started lending to group companies of NBFCs and home finance companies (HFCs) against share pledges. The Sebi move is expected to offer some relief to stressed HFCs and systematically important NBFCs.

Sebi will also mandate more disclosures from promoter groups, which was earlier required only for promoters and key managerial personnel (KMP), the two people added. The steps are in addition to Sebi considering de-risking of liquid funds following the Infrastructure Leasing and Finance Services (IL&FS) crisis and easing of start-up listing processes.

“Sebi is considering to expand the current norms for OFS by allowing companies with more than 1,000 crore of market capitalization to raise funds via this route. This is based on a representation from DIPAM (department of investment and public asset management (DIPAM)," said the first person cited above.

Currently, OFS is available only to top 200 companies by market capitalization in any of the last four completed quarters. With this change, OFS will be available to at least 800 companies, according to market capitalization data on BSE. If approved, companies such as NLC India Ltd, Housing and Urban Development Corp. Ltd (HUDCO), SJVN Ltd and KIOCL Ltd can raise funds or trim government holding via OFS.

With just over four months left in this fiscal year, DIPAM is fast-tracking the process to achieve the disinvestment target of 80,000 crore. So far, the government has mopped up over 15,200 crore from stake sales in state-run companies through public offers, OFS and through CPSE ETFs.

HUDCO, SJVN, NLC and KIOCL have less than 25% of public float as of September. KIOCL has 99% government holding, while NLC is owned 84%. HUDCO has 89.91% of government holding and SJVN has 90.78% promoter holding. At September end, 37 public sector companies are yet to comply with the Sebi requirement of minimum public float of 25%. Sebi had mandated that PSUs achieve the target by August 2017, and the deadline was extended by another year to August 2018.

“This expansion of eligibility criteria will also help the government in complying with the Sebi requirement of 25% of public float in PSUs. However it will depend on the valuations the government will fetch for these companies. Many companies have gone slow in their fund-raising plans due to the impending elections. The government would like to hit the market maximum by January," said an investment banker, requesting anonymity.

To ease this, Sebi is also proposing that if there is a lack of interest from institutional investors at or above the floor price on the first day of offer, then the seller can cancel the offer and not proceed with it on the second day.

The Sebi board is also expected to make it mandatory for promoter group to make continuous disclosures about their shareholdings and share transactions of more than 10 lakh in the company as a measure to strengthen the prevention of insider trading. This is currently required for only KMPs and promoters.

Separately, Sebi will also ease norms on clubbing of foreign portfolio investor (FPI) investment limits. Currently, if FPIs have the same ultimate beneficiary, they are treated as part of the same investor group and the investment limits are clubbed.

Sebi is set to relax this by clubbing investment limits only if more than 50% of funds have common ownership with multiple entities. The clubbing will also not be applicable for well-regulated public retail funds such as insurance companies, pension funds and mutual funds.

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