ESOP’s fable: Banks get a free hand

As per the extant instructions, bank finance to assist employees to buy shares of their own company under the employees quota is restricted to Rs 50,000 or six months salary of the employee, whichever is less. The assistance is also limited to 90 per cent of the purchase price of the shares.

These instructions have been recently reviewed by RBI in the context of more and more companies offering their employees stock options in conformity with Sebi guidelines as an incentive package as well as through specific reservation to the employees during IPOs; and increased awareness among banks of risks involved in such financing as well as introduction of robust system of assessing risks.

According to Prithvi Haldea of PRIME, India’s premier database on the primary capital market, as many as 30 offer documents are now awaiting SEBI approval to raise a phenomenal Rs 16,254 crore and issues aggregating Rs. 2,180 crore are about to be filed, bringing the total to Rs. 18,831 crore.

The latest RBI guideline will help all the employees of these companies to participate in the IPOs in a big way.

According to PRIME, never before has so much amount been targeted to be raised at a given point of time as now. Significantly, this is a serious pipeline, having reached SEBI for approval and not just at intentions stage.

In case all these issues are able to hit the market during January to March, the quarter’s figure would far outscore even the highest annual amount of Rs. 13,312 crore that was achieved in 1994-95 as per Haldea.

According to Haldea, the key characteristics of the impending boom are one or combination of well-established companies, divestments either by the Government or by venture capitalist and follow-on offerings. There are hardly any issues for new projects.

As per Prime, the pipeline is 600 companies strong to raise nearly Rs 60,000 crore. Lined up for later part of the year are several eagerly awaited mega issues including from PSUs like BPCL, Haldia Petrochemicals, Mahanagar Gas, Power Finance and Power Grid, several bank issues and a host of private sector issues.