Sebi opens auction route for share sale; PSUs to benefit/Jan 03 2012

Sebi opens auction route for share sale; PSUs to benefit

By Ravi Ranjan Prasad Jan 03 2012 , Mumbai


Securities and Exchange Board of India on Tuesday broadened the scope of Securities Contract Regulation (Rules) to enable a faster and less cumbersome share sale by the central public sector enterprises to increase public shareholding.

The Sebi board, which met in Mumbai, approved additional methods for increasing minimum public shareholding in listed companies by way of institutional placement programme (IPP) and offer for sale of shares through the stock exchange in top 100 companies based on average market capitalisation.

These steps would help the government to sell stake in PSUs without resorting to the lengthy process of stake sale through the market route in very tough markets, which has stalled government’s disinvestment programme through the market route to meet its Rs 40,000 crore disinvestment target.

According to a PTI report, the government is likely to give green signal to the proposal of the disinvestment department to help it raise Rs 40,000 crore through innovative means like buyback and cross holding of equities in central public sector enterprises. “The buyback proposals would be placed before the cabinet committee of economic affairs (CCEA) for appropriate decision,” sources said. The CCEA would also consider the possibility of LIC, PSU banks or entities to buy government stake in central public sector enterprises.

In June 2010, the government had made it mandatory for all public-listed companies to raise public shareholding to 25 per cent but later it had amended the rule and said that PSUs to raise public shareholding to 10 per cent in the next three years.

As per the guidelines, the date by which companies need to comply with minimum public shareholding norm is June 4, 2013, said Jagannadham Thunuguntla, strategist & head of research, SMC Global Securities.

Currently, there are about eight PSUs in which the government holds more than 90 per cent stake. Hence, in these eight PSUs, the government holding shall be brought down to 90 per cent. The leading PSUs in this list are MMTC, HMT, National Fertilizers, Neyveli Lignite, RCF, State Bank of Mysore and STC.

Similarly, there are about 40 private sector companies in which the promoters hold more than 75 per cent stake. Hence, in these 40 private sector companies, the promoter holding shall be brought down to 75 per cent. The leading private sector companies in this list include Wipro, DLF, Reliance Power, Omaxe, Bajaj Corp, Godrej Properties, Jaypee Infra, L&T Finance. “Because of this, in the upcoming period of 2012 and until June 2013, action can be expected in these companies,” Thunuguntla said.

The IPP method can be used only for the purpose of complying with minimum public shareholding requirements under Securities Contract Regulation (Rules) or SCRR, either by way of fresh issue of capital or dilution by the promoters through an offer for sale. Using this method, public shareholding can be increased by 10 per cent or such lesser percentage as is required to comply with the minimum public shareholding requirement, a Sebi release said.

Under IPP, there would be simultaneous filing of red herring prospectus with Sebi, registrar of companies and stock exchanges.

The market regulator has clarified that offer under IPP would be made only to qualified institutional buyers (QIBs). There would be a reservation of minimum 25 per cent to mutual funds and insurance companies. Under IPP, the issuing company needs to announce an indicative floor price or price band at least one day prior to the opening of the offer. The aggregate demand schedule will be displayed by stock exchanges.

“Issuers should endeavour to maximise the number of allottees in order to ensure wider distribution of shares. There should be at least 10 allottees in every IPP issuance. No single investor should receive allotment for more than 25 per cent of the offer size,” Sebi said.

The allotment of shares may be made on price priority, proportionate or on pre-specified criteria which has to be disclosed in advance in the prospectus and cannot be changed subsequently, the market regulator said.

Under offer for sale of share through stock exchanges, the stock exchange will offer a separate window for the purpose of such sales. The duration of this window would co-exist with the normal trading hours.

The offer should be for at least 1 per cent of the paid-up capital of the company, subject to a minimum of Rs 25 crore, Sebi said.

Only the promoter/promoter group of companies, which are active or eligible for trading would be permitted to offer their shares for sale. Promoter and promoter group of the company would not be permitted to bid for the shares.

Under offer for sale, every bid/buy order would be required to be backed by 100 per cent upfront cash margin. The settlement should be through exchange clearing mechanism, according to Sebi.

Allotment would be done either on price priority or clearing price basis proportionately and would be overseen by the exchanges.

Apart from use for compliance with minimum shareholding requirements, this method can be used by promoters of top 100 companies (based on average market capitalisation) for sale of their stake.

In another major decision, the Sebi board decided to introduce some changes in the tender offer method of buyback to enhance efficiency of the buyback process.

To provide equitable treatment to all shareholders, now the company should announce ratio of buyback as is done in the case of rights issues and fix a record date for determination of entitlements as per shareholding on the record date, Sebi said.

While shareholders are free to tender over and above their entitlement, acceptance of shares should first be based on entitlement of each shareholder and if any shares are still left to be bought back, acceptance of additional shares tendered over and above the entitlement shall be in proportion to the excess shares tendered by the shareholder, Sebi said.

The company needs to fix a `record date’ for the purpose of deciding entitlement for buyback, as per the practice followed for other actions as laid down in listing agreement.

The public announcement for the buyback should be published within two working days from the date of board or shareholders resolution, as the case may be, Sebi said.

The timelines for various activities involved in the buyback process have been revised which should result in substantial reduction of time taken for completion of buyback.

raviranjan