Panel for scrapping par value

The group, headed by chief economic advisor Shankar N Acharya, was set up in January 1998 with representatives from the ministry of finance, Reserve Bank, Department of Company Affairs and Securities and Exchange Board of India SEBI.

The panel move follows complaints that many firms paid high dividends on their par values, in some case even to the tune of 100 per cent on Rs 10 shares, when the share price ofthese companies was well above their face values.

quot;Abolishing the par value will automatically promote the notion of dividend per share rather than dividend as a percentage of par value,quot; it said. It has also suggested introduction of new instruments such as puttable equity and equity commitment notes in the primary market.

Under puttable equity, investors have the option of selling shares back to the company at a pre-specified price while equity commitment are converted into ordinary shares at then prevailing price and if the prices falls at the time of conversion then the investor gets more number of shares.

In order to make more efficient and transparent secondary markets, the committee has suggested market making could be made compulsory at least for a period of 6-12 months from the date of listing. Under market making buy and sell quotes are provided by the market intermediaries like merchant bankers, stock brokers and financial institutions operating in the markets.

Further it has suggested topopularise market making and that stock lending by market makers be allowed. Currently, these intermediaries are not allowed to lend stocks. The committee has said that adequate amount of credit should also be made available to market makers and there should be more active encouragement to make lines of credit available to them. The panel has emphasised on market making as it found that except for a handful of securities, there is no depth in the secondary market and investors get locked-in for unduly long period. On the regulatory aspect, the committee has suggested that criterion of dividend payment should be replaced with minimum net worth as a pre-condition for corporates to make an initial public offering.

It has further stated that corporates should have earned a profit of at least 10 per cent of the net worth for a period of three years out of which two years must be preceding the initial public offering IPO.

Expressing concern over high cost of raising money through IPOs, committee has suggestedthat the cost should be made internationally competitive. For it, report has suggested for popularising book building, making mandatory to make IPOs through depository and application form printed in the newspapers instead of printing crores of forms.

Comparing the cost, the committee says that the cost of a domestic issue is nine per cent compared to four per cent for a global depository receipt.