Securities regulator SEBI has tweaked the norms for offer for sale (OFS) by promoters and brought down the ‘cooling off period’ between two rounds of such share sale from 12 weeks to two weeks in a move that will ease the process to meet the minimum public shareholding norms.
Promoters of public-listed companies have to conform to the new public shareholding norms, which require promoters of private firms to bring down their holding to 75 per cent by June 2013 while the government needs to bring down its own holding in public sector firms to 90 per cent by August next year. There are more than 150 private companies listed on the stock exchanges with promoter holding of over 75 per cent and over a dozen PSUs where the government owns more than 90 per cent.
Earlier this year, the market regulator had provided a new route to help promoters comply with the norms by allowing them to sell shares through OFS or institutional placement (IPP). However, it had tagged in certain conditions such as a minimum period of 12 weeks or roughly three months between two successive share sale programmes.
In the revised norms, SEBI has said that within the cooling off period of 12 weeks, the promoter(s)/promoter group entities can offer their shares only through OFS or IPP while maintaining a gap of two weeks between two successive OFS or IPP. “This would also be applicable for promoters who have already offloaded their shares through OFS or IPP,” it added.
Although it is unlikely that promoters of a firm would opt for two OFS/IPPs within such a short period of time, the new norms provide a window for more frequent share sales by promoters. This would especially provide a leeway for promoters who hold a large chunk of shares of their respective companies and may find it difficult to offload those in a few tranches in a difficult market as they approach the June 2013 deadline to comply with the rules.
SEBI has also relaxed the margin requirement for bidding by investors in such issues. “Institutional investors shall have the option of applying with 100 per cent upfront margin in cash or with an ad hoc margin of certain lower percentage to be determined by the exchanges. In the latter case, the bids shall not be permitted to be modified.”
The margin requirement mandates investors to bring in all the money upfront while bidding which is seen as a negative from the investors’ point.
From the private sector, promoters of only two companies – Wipro and Godrej Properties – have completed their OFS/IPPs as per the new window to decrease their holdings.
Other changes related to OFS decided by SEBI:
- Modification/cancellation of bids shall not be allowed during the last 60 minutes from the close of bidding session instead of the last 30 minutes.
- Indicative price shall be displayed during the last 60 minutes from the close of bidding session irrespective of the book being built.
- The dissemination of floor price shall not be a part of the notice. If the seller intends to disclose the floor price, the price shall be disclosed after the close of business hours on (T-1) day (T day being the day of OFS).
- The minimum size of the offer shall be Rs 25 crore. However, the size of offer can be less than Rs 25 crore so as to achieve minimum public shareholding in a single tranche.
- The issuer shall have the option to upsize the offer subject to appropriate disclosure in the notice and advance pay-in of shares.
- Additional time shall be provided to the custodians to confirm the institutional bids during post-close trading hours subject to the condition that the bids and payments have been received before closure of the bidding process.
Besides the modifications associated with OFS norms, SEBI has also called for easing the process of voting by minority shareholders for improving corporate governance practices. It has made electronic voting mandatory for all listed companies regarding those businesses to be transacted through postal ballots. However, this would be implemented in a phased manner, starting with compulsory compliance for the top 500 companies (based on market capitalisation) listed on the BSE and the NSE.
The regulator has also decided to put in place a mechanism to process qualified annual audit reports filed by the entities listed with stock exchanges and has brought infrastructure firms on par with other companies when it comes to minimum equity on sale during the IPO.
“It has also been decided to modify the minimum subscription requirements for companies coming out with IPOs to state that the minimum subscription shall not be less than 90 per cent of the offer, subject to allotment of minimum 25 per cent or 10 per cent, as the case may be, of the securities offered to the public,” SEBI said about infrastructure companies.
(Edited by Sanghamitra Mandal)