In a move that will help hapless companies seeking to raise capital from public market, Securities and Exchange Board of India (SEBI), on Thursday announced some key changes in the IPO guidelines for Indian companies.
The lacklustre performance of the capital markets has forced SEBI, that announced the changes after its board meeting here in Mumbai, to liberalise some of its guidelines pertaining to IPOs, FPOs, Rights Issue and QIPs.
SEBI has lowered the average free float market capitalisation requirements for companies seeking to raise money through a follow on public offer or FPO and Rights issue from Rs 5,000 crore to Rs 3,000 crore, through the 'fast-track' route. In a fast-track mechanism, the company does not need to file draft red herring prospectus with the markets regulator and can go ahead with the issue. However, a post issue document with the Registrar of Companies needs to be filed.
For companies wanting to do a qualified institutional placement and raise money, a falling market has been a dampener. “Existing guidelines ask for a two weeks average price to be considered for the QIP. But in a volatile market, the price movement can be a dampener and a lot of such issues could not be launched,” the head of equity capital markets with an investment bank said. According to him, SEBI’s decision to allow five per cent discount to the two weeks average will spurt demand and deals will go through.
To instil transparency in the IPO process and protect retail investor’s interest, SEBI has barred withdrawal or lowering of bids by non retail investors at any stage of the IPO. “Many a time, the initial demand from the institutional and non retail investors was highlighted to rake in money from retail investors but bids were withdrawn at a later date, misleading the investors,” another investment banker with a foreign bank said.
In what could help companies to comply with minimum public holding norms, SEBI has now allowed companies to issue equity through bonus issue and Rights issue to its existing shareholders.
In other smaller changes to the Securities Contract Regulations Rule, or SCRR norms, SEBI has relaxed the 20 per cent minimum public shareholding by allowing not more than 10 per cent to come from alternate investment funds such as private equity investors, venture capital investors and SME funds. Also companies seeking to raise money through IPO can now change the proposed amount to be raised by up to 20 per cent as against a 10 per cent cap earlier.
Tightening the norms for the use of proceeds from the issue and to bring transparency to the IPO process, SEBI has put a cap of not more than 25 per cent of the proceeds to be used for general corporate purpose.
In its board meet, the capital markets regulator also liberalised the norms governing mutual funds in the country. SEBI has also recommended to the government tax benefits to equity MF investors under the proposed Rajiv Gandhi Equity Savings Scheme (RGESS).
SEBI has decided that service tax would be charged from investors seeking to invest in mutual funds and not to the asset management company (AMC) as is the practice at present.
Besides, the AMCs would be allowed to charge additional expense ratio (the charge levied by fund houses towards fund management fees and other expenses) for catering beyond a threshold limit in the smaller cities.
(Edited by Prem Udayabhanu)