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SEBI tweaks norms for pricing of open offer, margin requirement in offer for sale

18 January, 2013

Market regulator Securities & Exchange Board of India (SEBI) has announced a clutch of changes including margin requirement in offer for sale (OFS), norms related to infrastructure debt funds, pricing of open offer with preferential allotments and creation of separate debt segment in stock exchanges. Besides these key decisions, the SEBI board, in its meeting on Friday, also mooted a proposal to tweak some KYC regulations to help reduce the cost and delay in movement of documents, ensure saving in warehousing charges and avoid printouts of documents of millions of existing investors.

Here’s a quick look at the highlights.

Review of OFS through stock exchange

SEBI has decided that institutions may place orders/bids with 100 per cent upfront margin and modification/cancellation of such orders/bids shall be permitted. Institutions may place orders without upfront margin in line with the secondary market practice, but such bids/orders cannot be modified/cancelled, except for upward revision in the price or quantity. In addition, cumulative bid quantity of 100 per cent margined orders, as well as non-margined but non-cancellable orders, will be made available to the market throughout the trading session. The indicative price will be disclosed to the market throughout the trading session and it will be calculated based on all bids/orders.

Takeover regulations

The regulator has stated that where the open offer obligations are triggered, pursuant to an agreement or otherwise in combination of any mode of acquisition, the ‘relevant date’ for making the public announcement and determination of offer price will be the earliest date on which obligations are triggered. It has decided that the date of board resolution authorising a preferential allotment will be the relevant date for the purpose of triggering open offer obligations and determination of offer price, instead of the date when the special resolution is passed. This has been decided as the information about the impending preferential allotment comes into the public domain on the date of the board resolution which authorises the preferential allotment and the market price gets adjusted or may even rise, which exposes the transaction to market risks.

In order to bring parity in disclosure requirements among various SEBI regulations, the disclosure requirement regarding buy or sell of 2 per cent by shareholders owning over 5 per cent, will be modified in line with the SEBI (Prohibition of Insider Trading) Regulations, 1992.

Presently, if the voting rights of a shareholder who is not a party to the buyback arrangement, go beyond the prescribed threshold limit on account of buyback by the target company, the open offer requirement will not be triggered if voting rights are brought below the threshold limit within 90 days from the date when the voting rights so increase. It has now been clarified that the period of 90 days will be reckoned from the date of closure of the buyback offer.

Presently, the regulations do not allow the completion of acquisition of shares or voting rights which triggers the open offer until the expiry of the offer period. But such acquisition can be completed after the expiry of 21 working days from the date of the detailed public statement, provided the acquirer deposits 100 per cent of the consideration in cash in the escrow account. It has been decided that the market purchases made during the open offer period can be completed during the open offer period, subject to such shares being kept in an escrow account. Further, the shares can be transferred from the escrow account to the name of the acquirer after the expiry of 21 working days from the date of the detailed public statement, provided the acquirer deposits 100 per cent of the consideration payable in cash in the escrow account.

Amendments for Infrastructure Debt Fund (IDF) regulations

IDF-MFs will be allowed to invest funds received on account of pre-payment of principal or regular repayments of principal with respect to the underlying assets of the IDF in bonds of public financial institutions and infrastructure finance companies. This can be done only if the AMC is unable to find the core assets like debt assets or securitised debt of infrastructure companies, bank loans related to infrastructure, etc., for deployment of the amounts of principal.

The tenure of the mutual fund scheme will be allowed to be extended up to two years beyond the original tenure, with the consent of two-thirds of its investors by value.

The present definition of strategic investors will be widened to include ‘systemically important NBFCs’ registered with RBI and SEBI-registered FIIs. These will be in addition to the present categories of investors such as an infrastructure finance company registered with RBI as NBFC, commercial bank and international multilateral financial institution.

SEBI has also decided to allow IDFs to extend the new fund offer (NFO) period up to 45 days (from up to 15 days) and the specified transaction period or STP up to 45 days (from up to 30 days). It has also decided that private placement to less than 50 investors will be permitted as an alternative.

The regulator has also said that an IDF scheme will be allowed to invest up to 30 per cent of its AUM in assets not below the investment grade owned by sponsor/associates (from the earlier 20 per cent), subject to the condition that the sponsor/associate retains at least 30 per cent of the assets sold to the IDF till the assets are held in the IDF portfolio.

Investments of the IDF scheme in instruments, irrespective of rating, of a single issuer will be restricted to 30 per cent of net assets and overall investment of the scheme in unrated/below investment grade assets will be restricted to 30 per cent of the net assets, extendable to 50 per cent with the prior approval of the boards of trustee & AMC.

Introduction of debt segment in stock exchanges

To develop corporate bond markets and encourage trading on stock exchange trading platform, SEBI has proposed to create a separate debt segment on stock exchanges which will provide for trading, reporting, membership, clearing and settlement rules, risk management framework and other necessary provisions. This will also facilitate commercial banks to become members of stock exchanges for the purpose of undertaking proprietary transactions in the corporate bond market, as approved by the RBI last November.

To enable direct membership of banks and other institutional participants in the proposed debt segment, SEBI has approved amendments in regulations to include the debt segment, in addition to the derivatives segment and the currency derivatives segment in the definition of clearing members, self-clearing members and trading members.

Two-way fungibility of IDRs

In order to provide liquidity in the domestic markets, it has been decided to enable partial two-way fungibility of Indian Depository Receipts (IDRs). Fungibility will allow foreign investors to arbitrage between IDRs and shares of the parent company listed overseas by redeeming IDRs into underlying equity shares and re-converting equity shares of a foreign issuer into IDRs. The move, first announced by the finance minister in his budget speech last year, is aimed at boosting trading of such securities in the Indian capital market. Currently, Standard Chartered Plc is the only MNC to float IDRs in India.

(Edited by Sanghamitra Mandal)


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SEBI tweaks norms for pricing of open offer, margin requirement in offer for sale

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