Companies are 'legally bound' to abide by disclosures: SEBI

Responding to a query regarding lock-in requirements for allotted shares, the market regulator said a prospectus is a document with legal validity and the company is legally bound to abide by the disclosures made therein

New Delhi: Market regulator Securities and Exchange Board of India (SEBI) has said that a company is 'legally bound' to abide by the disclosures made in its prospectus for allotment of shares to investors.


"A prospectus is a document with legal validity and the company is legally bound to abide by the disclosures made therein," SEBI said.


This was in response to a query that sought regulator's opinion regarding lock-in requirements for alloted shares as stated in the company's prospectus.


According to SEBI, the disclosure in the prospectus on allotment of shares, has enforceability as in case of a contract.


The opinion was sought by Rushil Decor Ltd, which pursuant to an initial public offering allotted shares in July 2011.


The company had specified in the prospectus that the entire pre-issue share capital of the company, other than minimum promoter's contribution would be locked-in for a period of one year from the date of commencement of commercial production or date of allotment, whichever is later.


However, the company stated that it "inadvertently" linked the lock-in period with commencement of commercial production and wanted to rectify the same.


As per SEBI, while the disclosures made by the entity did not violate any requirement under the norms but that the relaxation from lock-in requirements as stated in the firm's prospectus would not be permissible as the company is legally bound to comply with the statements.


"...the company would be legally bound to comply with the matters stated in the prospectus, based on which it has raised money from the public," the regulator said.


The regulator noted that the lock-in of pre-issue share capital is significant from the point of view of investor protection.


SEB restructuring: Some positives, though several concerns remain

The operating gap is likely to turn positive post restructuring, but the key lies in implementation

The estimated the losses for state distribution companies (Discoms), before accounting for government subsidy, in the country is around Rs80,000 crore in FY12, up from around Rs63,500 crore in FY10, according to ICRA research. Hence, the restructuring the debt of Discoms was approved by the Cabinet Committee on Economic Affairs (CCEA). The scheme lists various measures required to be taken by Discoms and state governments for achieving the financial turnaround of the Discoms by restructuring their debts with support through a Transitional Finance Mechanism by the central government. 
Nomura expects an operating break-even for most ‘problem’ Discoms post the restructuring plan. According to its research on the recently published FY11 financial statements and the FY13 tariff orders of SEBs (state electricity boards) the brokerage expects that the operating gap for a majority of the Discoms (Tamil Nadu, Madhya Pradesh, Andhra Pradesh, Punjab and Haryana), is likely to turn positive due to a combination of lower interest expense derived from the FRP, tariff hikes and fixed cost rationalization. According to the research firm, Power Finance Corporation and Rural Electrification Corporation, which have committed to extend Rs17,000 crore each of transition loans to tide over losses in the interim, would be the biggest beneficiaries. However, implementation is the key. 
Read analysis of other Nomura reports here.
In addition to the tariff hikes done in FY12 and FY13 so far, tighter control on the delivered cost of power (largely fixed costs) is mainly responsible for reductions in the Discoms’ operating gaps, says the report. However, the actual delivered cost of power could vary compared to the tariff order and the gap has become manageable for most states. 
Rajasthan will need a longer trajectory to close its operating gap, UP is expected to see a tariff hike over the next few weeks, according to the report. The financial restructuring plan links the central government’s incentives to a trajectory of 25% gap reduction every year with FY11 as the benchmark year and the FY13-15(F) as the eligible years. UP shows a much larger deficit compared to the target gap for FY13, which could potentially get addressed post the impending tariff hike. Assuming all states adhere to the trajectory for FY14F and FY15F, only Rajasthan, UP and TN would likely report operating losses post subsidy.
Barring Punjab and Haryana, most states would be close to their FRBM mandates after taking up the Discom liabilities. We covered this in an earlier article (Read: The farce of power sector reforms: States have limited room to absorb more liabilities
The main reason for the losses is either limited or absence of tariff revision for prolonged periods besides inability to control distribution loss levels in some of these states. In an earlier report ICRA research observed that tariff revisions have been carried out for discoms across many states for FY12. However, the quantum of hikes is well short of what is required for full recovery of costs in most states and is also accompanied by significant delays. Even with respect to tariff petition for FY13 and true-up for past periods (up to FY11).


Nifty, Sensex fail to break out of consolidation zone: Friday Closing Report

There is no short-term now for the market. The medium-term trend remains down

The market snapped its two-day winning streak and settled lower today on selling pressure in power, metal and capital goods stocks. Although the Nifty managed to keep itself above yesterday’s low, today’s move on the index took away more than half of yesterday's gain. The medium-term trend is down. The National Stock Exchange (NSE) saw a volume of 66.04 crore shares and an advance decline ratio of 652:1051.
The domestic market witnessed a gap down opening, giving up the gains accrued yesterday, on profit booking and unsupportive global cues. Markets in the US closed lower as technology stocks dragged following lower-than-expected earnings report from Google and a rise in weekly jobless claims. Markets in Asia were subdued in morning trade tracking overnight losses in the US.
Back home, the Nifty opened 16 points lower at 5,703 and the Sensex started the day at 18,768, down 24 points from its previous close. The market inched up to its intraday high in early trade with the Nifty going up to 5,712 and the Sensex rising to 18,770.
The benchmarks extended their losses as trade progressed on selling pressure in banking, capital goods, metal and auto sectors. The market continued to languish in noon trade on a lower opening of the European indices. 
The indices fell to their lows shortly before 2.30pm wherein the Nifty stood at 5,660 and the Sensex retracted to 18,612.
However, a minor recovery helped the market close off the lows. The Nifty fell 34 points (0.60%) to 5,684 and the Sensex dropped 110 points (0.58%) to finish at 18,682.
Among the broader markets, the BSE Mid-cap index declined 0.52% and the BSE Small-cap index fell 0.34%.
BSE Fast Moving Consumer Goods (up 0.84%) and BSE Consumer Durables (up 0.43) were the only sectoral gainers. The top losers were BSE Power (down 1.44%); BSE Metal (down 1.32%); BSE Capital Goods (down 1.09%); BSE Auto (down 0.90%) and BSE Bankex (down 0.86%).
Six of the 30 stocks on the Sensex closed in the positive. The key gainers were ITC (up 2.09%); Hero MotoCorp (up 0.54%); Dr Reddy’s Laboratories (up 0.43%); Bharti Airtel (up 0.34%) and Infosys (up 0.32%). The major losers were Hindalco Industries (down 2.54%); Jindal Steel (down 2.53%); GAIL India (down 2.31%); BHEL (down 2.02%) and Tata Power (down 1.82%).
The top two A Group gainers on the BSE were—CRISIL (up 3.37%) and Gitanjali Gems (up 3.28%).
The top two A Group losers on the BSE were—Exide Industries (down 8.82%) and Indian Hotels (down 5.48%).
The top two B Group gainers on the BSE were—Fintech Communications (up 20%) and Agre Developers (up 19.91%).
The top two B Group losers on the BSE were—SEL Manufacturing Company (down 9.75%) and Raj Oil Mills (down 9.69%).
Out of the 50 stocks listed on the Nifty, nine stocks settled in the positive. The top gainers were ITC (up 1.87%); Ambuja Cement (up 1.48%); Dr Reddy’s (up 0.53%); Infosys (up 0.44%) and Bharti Airtel (up 0.41%). The main losers were Jindal Steel (down 2.62%); Hindalco Ind (down 2.55%); BHEL (down 2.37%); BPCL (down 2.315) and Grasim Industries (down 2.12%).
The Asian pack closed mostly lower on dismal earnings reports from tech majors Google and Microsoft.  The lower-than-expected earnings reflected the slowdown in the economy, analysts pointed.
The Shanghai Composite slipped 0.16%; the Jakarta Composite declined 0.59%; the Straits Times fell 0.37%; the Seoul Composite dropped 0.78% and the Taiwan Weighted settled 0.76% lower. On the other hand, the Hang Seng rose 0.15%; the KLSE Composite added 0.06% and the Nikkei 225 gained 0.22%.
At the time of writing, the key European indices were between 0.28% and 0.69% and the US stock futures were in the negative, indicating a lower opening for US stocks. 
Back home, institutional investors—foreign and domestic—were net sellers in the equities segment on Thursday. While foreign institutional investors offloaded stocks worth Rs68.87 crore, domestic institutional investors pulled out shares of Rs184.56 crore.
Petronet LNG (PLL) is looking at plans to sell gas to the power sector from its proposed terminal at Gangavaram port in Andhra Pradesh. The company has to source liquefied natural gas cheap if it is to be viable for the power sector. PLL has signed a pact with HPCL to cater to the latter’s Vizag refinery and at least five power generation companies located close to port are in discussions with PLL for sourcing liquefied natural gas. The stock gained 0.99% to close at Rs168.80 on the NSE.
Public sector lender Dena Bank has waived the entire processing fee for home and car loans. For personal and gold loans, it has reduced the fee by half. The move follows the country’s largest bank State Bank of India’s reduction in processing fee on home and car loans by half. The festive offer is valid up to 31st October 31, the bank said. The stock declined 0.94% to close at Rs110.50 on the NSE.
Apollo Hospitals Enterprise (AHEL) is planning to set up standalone diabetes clinics under the brand name “Sugar Clinic” to cash in on healthcare service opportunities in diabetes management across the country. The company is scouting for a tie-up with a foreign partner to offer diabetes management services to patients, said a senior official from AHEL. The stock gained 1.36% to close at Rs755 on the NSE.



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