The capital markets regulator Securities and Exchange Board of India (SEBI) has decided to cut the time-line for listing of a firm after its initial public offer (IPO), streamlined the process for follow-on public offers (FPO) and rights issues.
In its board meeting on Tuesday, the regulator also took other decisions related to declassification of promoters and prescribed rules for interim use of funds raised through a public issue besides discussing a proposal to merge Forward Markets Commission (FMC) with SEBI and came out with final rules for the proposed startup listing platform (more on that here).
Here's the gist of the key decisions:
Streamlining the process of public issues, FPOs and rights issues
In order to reduce the post-issue time-line for listing from existing T+12 days to T+6 days, increase the reach of retail investors and reduce the costs involved in public issue of equity shares and convertibles, SEBI has made it mandatory for all investors to make ASBA applications.
ASBA is applications supported by blocked amount where investors proposing to invest in an issue, especially IPO, do not sign cheques and instead authorise a certain amount to be blocked in their bank account. The IPO applicant's account doesn't get debited until shares are allotted to them.
This enables investors to give the mandate for payment of application money in the application form itself without suffering loss of interest for the intervening period. It also obviates the hassle of refund of money by the issuer as per the difference in application amount and the amount for which shares are finally allotted.
Moreover, to enhance the points for submission of applications, registrar and share transfer agents and depository participants shall also be allowed to accept application forms (both physical as well as online) and make bids on the stock exchange platform. This will be over and above the stock brokers and banks where such facilities are presently available.
To help intermediaries and banks to modify their existing systems and train their staff and also enable the investors to adapt to the new system, there will be a phase-in period of six months. Accordingly, a public issue which opens on or after January 01, 2016 will have to follow the new system.
In order to enable more number of listed companies to raise further capital using fast-track route, SEBI approved the proposal to reduce the minimum public holding requirement from Rs 3,000 crore to Rs 1,000 crore in case of FPOs and to Rs 250 crore in case of rights issue, subject to compliance with some conditions.
It said that in the case of rights issue, promoters shall not renounce their rights, except to the extent of renunciations within the promoter group, or for the purposes of complying with minimum public shareholding norms.
Moreover, the annualised delivery-based trading turnover requirement will be 10 per cent of the total paid up capital and there should be no conflict of interest between the lead manager and the issuer or its group or associate company in accordance with applicable SEBI regulations.
It added that in such issues, shares of the company should not have been suspended from trading as a disciplinary measure in past three years and the issuer, promoter group and directors of the issuer should not have settled any alleged violation of securities laws through the consent mechanism with SEBI in the last three years. This is in addition to the existing condition that no show-cause notices should have been issued or prosecution proceedings initiated by SEBI or pending against the issuer or its promoters or whole-time directors.
SEBI also approved changes to the present offer-for-sale framework.
Re-classification of promoters as public
SEBI has approved a proposal for putting in place a regulatory framework for re-classification of promoters in listed companies as public shareholders under various circumstances. It said that an existing promoter of a listed entity may cease to be a promoter and/or re-classify itself as public when a new promoter replaces the previous promoter subsequent to an open offer or in any other manner, re-classification shall be permitted subject to approval of shareholders in the general meeting.
SEBI said shareholders need to specifically approve whether the outgoing promoter can hold any key management position in the company. It said that in any case, the outgoing promoter may not act as a key management personnel for a period of more than three years from the date of shareholders’ approval and the outgoing promoter can’t hold more than 10 per cent shares of the company.
Existing promoters may be re-classified as public in case the company becomes professionally managed and does not have any identifiable promoter. SEBI said a company will be considered as professionally managed if no person or group along with persons acting in concert (PACs) taken together holds more than 1 per cent shares of the company (including any convertibles/outstanding warrants/ADR/GDR holding).
IT said that the outgoing promoter shall not have any special rights through any formal or informal arrangements and shall not, directly or indirectly, exercise control over the affairs of the company.
SEBI added that increase in public shareholding pursuant to re-classification of promoters may not be counted towards achieving compliance with minimum public shareholding requirement and if any public shareholder seeks to re-classify itself as promoter, it shall be required to make an open offer to the shareholders and would not be eligible for exemption from the said obligation.
The regulator said that re-classification may be disclosed as a material event in accordance with the listing agreement/regulations and to remove difficulties in specific cases SEBI authorised its chairman to take required measures on a case to case basis.
SEBI board also discussed operational issues relating to the merger of FMC with SEBI but did not give any time-line for the same.
Interim use of funds by the issuers
To prevent misuse of funds during the interim period pending utilisation by the issuer for funds raised through public/rights issues, SEBI has decided that net issue proceeds pending utilisation (for the stated objects) shall be deposited only in scheduled commercial banks. In case of public/rights issue of Indian Depository Receipts, the issuer shall keep the funds in a bank having a credit rating of 'A' or above by an international credit rating agency.