SEBI bonanza for listing software cos

MUMBAI, AUG 17: The Securities and Exchange Board of India SEBI has announced a bonanza for information technology companies which are ...

MUMBAI, AUG 17: The Securities and Exchange Board of India SEBI has announced a bonanza for information technology companies which are planning to list their shares on the stock exchanges. The regulator has relaxed the mandatory public holding from 25 per cent to 10 per cent of the equity capital as a precondition for listing the shares of information technology IT companies.

However, the SEBI move is likely to trigger the entry of shady companies as IT companies to raise funds from the public and list their shares. There is already a rush of IT companies to raise funds from the public. Market experts now fear a deluge of IT issues from shady promoters.

The board of the SEBI which met here on Tuesday decided to relax the listing norms of IT companies subject to the following conditions:

At least 10 of securities issued by the company are offered to the public

At least 20 lakh securities are offered to the public excluding reservation, firm allotment and promoters8217;contribution

The size of the net offer to the public i.e. the offer price multiplied by the number of securities offered to the public which exclude reservation, firm allotment and promoters8217; contribution is at least Rs 50 crore.

The SEBI move follows the decision of the Registrar of Companies RoC not to allow companies to change their names to reflect the business of software until a substantial income is derived from software. The RoC took this decision after a large number of finance companies changed their names to reflect association with the software sector and misleading investors. RoC had said a company can change its name only if a substantial portion of their income from software business is reflected in audited accounts or accounts certified by a chartered accountant.

In fact, when the Varma panel on the primary market proposed these changes to the SEBI board two weeks ago, three members 8212; representatives of the investors, Finance Ministry and a professor 8212; had put a dissentnote. 8220;There is a fear that SEBI is opening a Pandora8217;s box. Genuine companies will raise funds whether it8217;s 25 per cent or 10 per cent. Chances of rigging the prices of companies with only 10 per cent of the equity listed on the exchanges are more,8221; said an expert.

According to merchant bankers, around 60 software issues are slated to hit the capital market in the current year. As many as eight software issues had already hit the market so far. 8220;With the share prices of blue chips like Infosys, NIIT, Wipro, Satyam and Pentafour ruling at very high levels, investors are also attracted to software issues. Many new issues which are being planned are floated by fly-by-night operators. One can soon witness a software issue scam like the public issue scam in the 1994-96 period,8221; said a merchant banker.

Analysts also feel that such measures will not revive the primary market and lead to higher capital formation. SEBI should ask software companies to disclose more details about their operations, especiallyfrom software, they said.