In a bid to streamline existing regulations and boost retail participation in the markets, the board of the Securities and Exchange Board of India on Thursday cleared a series of reform measures relating to primary markets, offer for sale, employee benefit schemes along with regulation for research analysts.
“Today the Sebi board has taken some very very important decisions,” Sebi chairman UK Sinha told reporters after the board meeting.
Deciding to raise the minimum public shareholding for state-owned companies from 10 per cent to 25 per cent over a three-year period, the regulator said, “Sebi has decided to recommend to ministry of finance that Securities Contracts (Regulation) Rules (SCRR) should be amended so that all listed companies including PSUs shall be required to achieve and maintain minimum public shareholding of 25 per cent of the total number of issued shares, within a time period of three years.”
The move is expected to raise over Rs 50,000 crore through sale of excess promoter stakes in state-run firms.
In a bid to provide a fillip to initial public offerings (IPO), Sebi also increased investment limit for anchor investors. The regulator also announced removal of the anomaly on minimum stake dilution through IPO and capped the minimum dilution for companies with post-issue market capitalisation of less than Rs 4,000 crore at 25 per cent or Rs 400 crore, whichever is less. Earlier, companies with post-issue market cap of less than Rs 4,000 crore were required to dilute 25 per cent, while those with higher market cap were required to dilute only 10 per cent.
The board also approved proposals to revamp existing Employee Stock Option Scheme (ESOS) Guidelines, 1999, and permitted employee benefit schemes such as ESOS and Employee Stock Purchase Scheme (ESPS) to acquire shares from secondary market. While the new proposal restricts sale of shares by trusts, it called to classify trust’s shareholding separate from ‘promoter’ and ‘public’ category.
Sebi also moved to revamp the offer for sale (OFS) mechanism and reserved 10 per cent of the offering for retail investors. It also allowed non-promoter shareholders to offer their shares through the OFS route, thereby providing an additional exit option to investors such as private equity. It also widened the net of OFS from top 100 firms to top 200 companies by market cap.
Market experts have welcomed Sebi’s move. “The anchor investor limit raise will result in a larger book available for the anchor investors and will also lead to a greater certainty for the issuer in terms of issue closure. Also with a relaxation in the rules on OFS, we would see more private equity funds using this facility to exit their holdings in a transparent manner.,” said Girish Nadkarni, MD, Motilal Oswal Investment Banking, adding that the markets will see good offerings from PSU companies the moves will lead to a revival in equity capital markets.
The board also approved sharing of KYC (know your customer) information with entities regulated by other financial sector watchdogs thereby making it convenient for investors. Once a KYC is done, investors will not be required to undergo the process again by intermediaries regulated by other financial regulators. The Sebi board has also finalised norms for ‘research analysts’ to ward off any conflict of interest in their activities. Sebi has also prescribed limitations on trading by research analysts.
As part of its efforts to revive primary markets, Sebi has also relaxed restrictions on sale of bonus shares held by promoters or other investors during an IPO of a company.