The Telegraph
Since 1st March, 1999
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Fillip for corporate market trip

Mumbai, Nov. 29: The Securities and Exchange Board of India (Sebi) today smoothened the path for companies keen to return to the capital markets to raise money after an initial public offering (IPO).

It also allowed issuers to offer shares to retail investors at a 10 per cent discount to the price set for other investor categories. The two relaxations were made through amendments to the Sebi (Disclosure and Investor Protection) Guidelines, 2000.

Earlier, companies had to go through an elaborate approval process which entailed comprehensive disclosures that were on a par with an initial public offer before they could float follow-on public offers (FPOs). The market regulator has now streamlined the process for listed companies.

While such companies will henceforth not be required to file a draft offer document with Sebi and stock exchanges, they will have to adhere to certain conditions.

The market regulator said the shares of the company should have been listed on any stock exchange having nationwide terminals for a period of at least three years immediately preceding the reference date (that is the date of filing the prospectus with the registrar of companies or stock exchanges).

The average market capitalisation or the public shareholding of the company should be at least Rs 10,000 crore for a period of one year up to the end of the quarter preceding the month in which the proposed issue is approved by the board of directors/shareholders of the issuer.

The market regulator also stipulated that the company should have redressed at least 95 per cent of the total shareholder/investor grievances received till the end of the quarter immediately preceding the month of the reference date.

Further, the company should have complied with the listing agreement for a period of at least three years immediately preceding the reference date.

Retail investors can now rejoice as the regulator has permitted companies to issue shares at a maximum discount of 10 per cent to the price at which securities are issued to other categories of the public. A retail individual shareholder has been defined as a shareholder who makes an application in a public issue for value not exceeding Rs 1 lakh.

Market experts said the decision would spark retail interest in a number of issues that would be floated later this fiscal. Although ICICI Bank did give a price discount of 5 per cent to retail investors for its FPO earlier this year, it had to seek special permission from Sebi.

Depository receipt recast

The regulator also amended guidelines for Indian Depository Receipts (IDRs). Until now, the guidelines allowed only qualified institutional buyers (QIBs) to apply for the allotment of IDRs.

The market regulator has now relaxed the condition and permitted all categories of investors to apply for IDR issues.

However, at least 50 per cent of the issue should be subscribed by QIBs while the balance could be made available for subscription to other categories of investors. It was also decided to reduce the minimum application value in IDR from Rs 2 lakh to Rs 20,000.

The government had permitted the issue of IDRs in February 2004, but not one company has done so till date because of onerous conditions that included a pre-issue capital of $100 million, an average turnover of $500 million in three preceding years and a pre-issue debt equity ratio of not more than 2:1.

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