Sebi board to meet today; reforms in IPO, OFS frameworks on cards

The Securities and Exchange Board of India (Sebi) would discuss and announce various reforms to revamp India's capital markets, including revision in initial public offerings (IPOs) and offer for sale (OFS) framework at its board meeting in New Delhi on Thursday.

The regulator intends to rectify anomalies and bring more flexibility pertaining to the minimum issue size in IPOs, which many companies have been exploiting. At present, all companies with a post-issue capital of below R4,000 crore are required to offer at least 25% stake in an IPO, while companies with above R4,000 crore post-issue capital are required to offer at least 10%. However, it created anomalies in borderline cases and companies slightly below the R4,000-crore mark showed valuation of the company as R4,000-crore plus.

The Sebi will also “favourably look” at increasing the quota of anchor investors in the qualified institutional investors (QIB) portion, sources said.

In the OFS segment, the capital market regulator may allow private equity funds and other large investors to off-load their stakes in listed companies, and also expand the eligibility to top 200 companies. At present, only top 100 companies by market capitalisation are permitted to use the OFS route for share sale.

Also, the board may consider the idea of reserving 10% in the offer for sale (OFS) issuances for retail investors, and additionally offer discounts to retail participants — a move that may help the government's disinvestment programme.

“We are expecting a lot of measures from the regulator, some of which we have proposed to improve and deepen our capital markets. We expect some of the measures will be implemented very soon,” a Mumbai-based investment banker said on condition of anonymity.

The OFS route was introduced in February 2012 as a fast-track mode for sale of shares by promoters. Since then more than 100 companies, including state-owned, have sold shares through this mechanism to mop-up close to R50,000 crore.

The meeting assumes significance as it would be the first gathering after the new government took charge at the Centre. The board comprises of seven members and includes Sebi chairman UK Sinha and department of economic affairs secretary Arvind Mayaram.

At a capital market conference earlier this month, Sebi chairman UK Sinha announced the regulator was working toward removing anomalies in the issue size of IPOs and announcing series of measures to boost investors' trust and confidence in Indian capital markets as well as bring clarity in the regulatory framework.

“Our larger goal is to provide a system where investors have trust and confidence in the market... Many international investors are facing serious problems with corporate governance and legal systems in India. I am sure we (India) can be a very good investment destination for domestic and foreign investors,” Sinha had said.

The board will also discuss the idea of extending the 25% minimum public shareholding norms to state-owned firms that was applicable only to private companies, which will the help the Centre raise R60,000 crore.

Under Sebi's issue of capital and disclosure requirement or ICDR (regulations) 2009, listed private companies are required to bring their promoter holding to 75%, whereas public sector companies listed on the exchange were asked to reduce promoter holding to 90%.

The Sebi will separately issue new norms on prevention of insider trading and real estate investment trusts (REITs). These issues, along with new norms for research analysts, common KYC procedure for the financial sector, changes to ESOP regulations, delisting of shares, and introduction of minimum penalty provisions, among others, are expected to be discussed at the meeting.