Companies such as Bharati Shipyard, Hindustan Motors, Essar Shipping, Aditya Birla Money, BAG Films would be shifted to 'T' group as part of surveillance measures of the regulators
National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) have decided to shift over 200 companies to the restricted trading segment or 'T' group from 6th June. Among the companies that are being shifted to 'T' segment are 'once upon a time' big names like Bharati Shipyard, Hindustan Motors, BPL Ltd, Aditya Birla Money and Essar Shipping.
Few other stocks which would be moved to trade-for-trade category or 'T' group on both the exchanges are -- Aditya Birla Money, BAG Films and Media, BPL Ltd, Digjam, Khaitan Electrical, Moser-Baer and Parrys Sugar Industries and Ramco Systems.
As per separate notices issued by both the bourses, BSE will transfer 213 stocks to the 'T Group', while NSE will move 117 scrips. "The scrips will be included in "T" Group and they would be traded and settled on Trade to Trade basis from 6 June 2014 and would attract a circuit filter of 5% or lower as applicable," BSE said in a release.
In 'T' segment no speculative trading is allowed and delivery of shares and payment of consideration amount are mandatory.
The bourses said the decision is part of a surveillance review to ensure market safety and safeguard the interest of investors.
The exchanges have asked its members "to take adequate precaution" while trading in these stocks.
They said, however, the transfer of security for trading and settlement on a trade-to-trade basis "is purely on account of market surveillance and it should not be construed as an adverse action against the concerned company".
These stocks would attract a circuit filter of up to 5% which would be the maximum permissible limit within which the share price can move.
Meanwhile, NSE also said that as many as 307 stocks would continue in the trade-for-trade segment on its platform which included securities of Jubilant Industries and Birla Cotsyn.
Bullishness in the secondary market has failed to spill over to the IPO market. From January to May 2014, there was only one IPO
Over the past four years, due to poor sentiment and secondary market volatility, there were very few initial public offerings (IPO). Now, although the stock markets have been hitting new highs, there is still no sign of any IPOs. In fact, from January till May 2014, only one company entered the capital markets through the IPO route. So where are the IPOs?
According to Jagannadham Thunuguntla, head of research, SMC Global, generally, the bullishness of the secondary market spills over to the IPO market and brings back the action. "...this time the action on IPO market still waiting to catch up despite the fact that the secondary market is making 'all-time highs' virtually every day. One can hope that IPO market will catch up quite soon," he said.
In addition, investor disenchantment with IPOs is clearly so high that even good companies have to make an extra push to attract investor attention. The reason is obvious, even today, volumes of information in the IPO prospectus does not help retail investors with one crucial data—that is, expected profits, that determines the most crucial aspect of a public issue—valuation. As Moneylife pointed out, lack of knowledge about this data ensures that promoters and lead managers can price an issue exorbitantly and get away. That is why after listing, share prices of many stocks have simply crashed.
During 2014, there was only one IPO of Wonderla Holiday, that too when over the past six months, the markets have turned bullish. Over the past 12 months, the S&P BSE Sensex hit a low of 17448.71 on August 2013 and a high of 25375.63 last month. Especially after August 2013, the Sensex, except for three months, has closed on higher compared to the previous month.
And yet there is no sign of a new IPO. Between 2011 to June 2014, almost 109 companies, including Ambiance, BPTP, Glenmark Generics, Lavasa Corporation, Joyalukkas, Reid & Taylor, Intas Pharma, Rashtriya Ispat Nigam and IFCI Factors have called off their IPOs. That too, when all of these companies had received approvals from market regulator SEBI. Even then these companies could not open their IPOs within the one year validity period from the date of SEBI approval. These 109 IPOs were valued at Rs52,000 crore.
In 2013 there was a mobilisation of just Rs1,619 crore through IPOs, which was termed as the lowest over the past 12 years, the previous low being in 2001 when only Rs296 crore had been raised through IPOs. The highest-ever mobilisation through IPOs was as recently as 2010 at Rs37,535 crore.
During 2013, there were just three main-board IPOs during the entire year: Just Dial: Rs919 crore, Repco Home Finance: Rs270 crore and V-Mart Retail: Rs94 crore (in 2012, there were 11 IPOs worth Rs6,835 crore).
According to Thunuguntla, considering the subdued market conditions during this period, it was quite understandable that so many IPOs got called off. Overall poor sentiments, secondary market volatility, promoters not getting the valuations they think they deserve, apprehensions of regulator’s views on valuations, lack of appetite for equity of big-time issuers from the infrastructure sector, especially power, telecom and real estate were cited as the reason for companies not willing to take the IPO route between 2011 to 2014. In addition, the government was also not been able to push through its disinvestment programme.
"One can hope that the IPO market will catch up soon and corporate India shall get ready with new fund raising plans. Else, if this slowdown of fund raising continues longer, it can impact the Indian corporates' ability to finance their expansion projects resulting in a slow down in capacity building and job creation," Thunuguntla said.
The sustainability of the secondary market, Indian government's approach to disinvestment and global liquidity hold the keys for the future of the IPO market. In addition, there is a need to make certain changes in the present system, where IPO pricing and sales are often subjected to manipulation done by the promoters and executed by the lead managers, as Moneylife has pointed out several times in the past.
Recent amendments in merger regulations will help bring clarity in M&A deals, especially big ticket international mergers, which will need Competition Commission's approval as the parties concerned have businesses in India
Almost three years after issuing the notification that mergers and acquisitions (M&As) above certain thresholds would require the Competition Commission of India’s (CCI) approval, the CCI amended certain provisions relating to combination regulations, effective March 2014. At a cursory glance, these amendments suggest that the clearance process for mergers and acquisitions would become simpler, besides also making it a more consumer friendly set of regulations.
Over 166 combinations have been approved by the CCI since the merger regulations came into effect. While mergers are intended to create synergy for the companies involved, they can result in reduced competition in the marketplace. The CCI’s mandate is to check a combination that causes “appreciable adverse effect on competition” which may result from the combined economic power of the merging companies.
The changes in merger regulations have come at a time when the corporate and the legal worlds are awaiting amendments to the Competition Act, 2002, which are expected to have larger ramifications on combinations that take place once the amendments are enacted. For instance, under the changed definition of “group” (section 5) in the proposed amendments to the Act, a 50:50 joint venture will be deemed to fall within the definition of “control” (through voting rights), which will require notifying the CCI. Currently, the concept of joint ventures is a grey area not explicitly dealt with in the Act. Also, the time-period required by the CCI to pass an order or issue directions with respect to combinations has been reduced to 180 days from the current 210 days.
However, amendments to the Competition Act, 2002, can only be executed through a Parliamentary ratification. Meanwhile, amendments to merger regulations (which don’t need to be routed through the cumbersome Parliamentary approval), will help bring clarity in M&A deals, especially big ticket international mergers which will need CCI’s approval as the parties concerned have businesses in India.
Highlights of the amendments to merger regulations:
To begin with, the CCI has made it possible for a wider set of deals to come under its purview. Post amendment, the CCI can look into the substance or the intention of a proposed merger and not be limited to the filling of the required forms. Hence, in situations where it is assumed that notifying the CCI is not required because the assets, turnover or local nexus criteria are not being met, the CCI has clarified that it can look into the substance of a deal. This would enable the CCI to fulfil its mandate more effectively, if need be, by taking suo motto cognizance of deals that are deliberately structured with an intention to avoid scrutiny from the CCI. In other words, it has empowered itself to scrutinize deals which would otherwise escape its attention.
Currently, two merging Indian firms or groups with a combined turnover of Rs4,500 crore and Rs18,000 crore respectively will need CCI’s approval before merging. Similarly, the thresholds for two global firms and global groups with a presence in India are combined global sales of $2.25 billion and $9 billion respectively, with a combined sales of Rs2,250 crore in India.
The CCI, through the amendment, has also deleted item 10 of schedule 1, thus removing ambiguity around the term “insignificant local nexus”. Item 10 referred to the effective exemption available to combinations taking place entirely outside India. So while the overseas merging companies will not have to deal with ambiguties about their transactions in India; the CCI will save time deciding whether the said deal falls within its purview or not. The CCI has also made filings in Form I, or the simplified form, more unambiguous. It changed the term “vertical arrangement” to “vertical relationship” in Schedule II, which is a more defined business terminology. It is a different matter that some people may think of this as merely a semantic exercise.
The amendments have allowed anybody who feels that the decision of the CCI on a combination has not been fair, to appeal to the Competition Appellate Tribunal (COMPAT), the quasi-judicial body to which an appeal can be made against any order of the CCI. This has been done by deleting regulation 29, which dealt with the provision relating to appeal to the COMPAT. So far, this regulation allowed only certain individuals and entities who were parties to the proceedings in a combination review, and those who were aggrieved by any direction, decision or order of the CCI to file an appeal. Further, this deletion also ensures that the CCI does not inadvertently get into a self made trap. For, any subordinate legislation (in this case the merger regulations brought out through an executive order) cannot override the primary legislation (in this case the Competition Act 2002). Regulation 29, thus could have been challenged in court .
Finally, in the more detailed form- Form II- the CCI has brought in more clarity by asking for the latest available financial documents on assets and sales of companies getting into combinations. The amendment specifies that value of assets/turnovers as per audited annual accounts of the immediately preceding two financial years be provided, as against the earlier regulation which required submitting “current and preceding years” audited annual accounts. This will help the CCI take an informed decision on an application seeking its approval. For the merging parties, this will allow them to furnish the latest financial statements rather than facing uncertainty over CCI’s view on current year’s statement.
NOTE: Views expressed in this article are personal
(KK Sharma is chief executive of KK Sharma Law Offices as well as former former director general of CCI. Sangeeta Singh is director for project operations at Nathan Economic Consulting, India)