SEBI tweaks rules for faster stake dilution by promoters


IPPs and OFSs are avenues made available to the promoters to help them dilute their stake and meet the guidelines of 25% minimum public shareholding in private companies and 10% in PSUs

New Delhi: With an aim to help promoters dilute stake to meet minimum 25% public holding norms, Securities and Exchange Board of India (SEBI) on Monday allowed the promoter entities to hit the market with successive institutional placement programme (IPP) and offer for sale (OFS) schemes with a two-week gap, reports PTI.


IPPs and OFSs are two recently announced avenues made available to the promoters by market regulator SEBI to help them dilute their stake and meet the guidelines of 25% minimum public shareholding in private firms and 10% in PSUs.


These are two fast-track stake sale programmes available for share sale through auction method, as against the long-drawn processes involved in traditional avenues like follow-on public offers (FPOs).


Various amendments have been notified by SEBI in its regulations pursuant to decisions taken at its last board meeting on August 16, where it decided that retail investors would be assured a minimum lot of shares and rules would be relaxed for promoters to meet minimum public holding norms.


However, the earlier regulations did not allow the promoter of a company to launch an IPP if any of the promoter group entities had purchased and/or sold shares in a 12-week period prior to the offer. Besides, the promoters were also not allowed to purchase and/or sell in the 12-week period after the offer.


While retaining this restriction, SEBI has amended rules to provide some relaxation to the promoters seeking faster dilution of their shareholding through IPP or OFS routes.


Now, such promoters may offer their shares through IPP or OFS routes within this 12-week period, subject to a condition that there shall be a gap of minimum two weeks between the two successive OFSs and/or IPPs.


In another amendment to its regulations mandating a minimum of 10% net offer to public in IPOs and FPOs, and of 25% in certain cases, SEBI has done away with the exemptions given to the government entities and certain infrastructure sector firms.


In a separate amendment to its ICDR (Issue of Capital and Disclosure Requirements) regulations, SEBI has amended rules that require minimum 90% subscription in an issue.


Now, this minimum subscription requirement for IPOs would be subject to allotment of a minimum number of securities.


This requirement would also apply in case of shares being sold through OFS scheme.


However, other minimum subscription related requirements would not apply to shares offered through OFS. These requirements include those related to refund of application money within a given time frame in the event of non-receipt of minimum subscription.


SEBI allows PE help to start-up IPOs for lock-in requirement

SEBI allowed professionals and qualified entrepreneurs to get help from private equity and other funds to meet share lock-in requirements

New Delhi: With an aim to help companies set up by professionals and qualified entrepreneurs to tap capital market, market regulator Securities and Exchange Board of India (SEBI) has allowed them to get help from private equity (PEs) and other funds to meet share lock-in requirements, reports PTI.


As per regulations of SEBI, promoters are required to lock-in at least 20% stake in the company for at least three years after allotment of shares in initial public offering (IPO).


Besides, any holding in excess of this minimum 20% promoter stake is required to be locked in for one year.


To encourage professionals and technically qualified entrepreneurs who are unable to meet the requisite 20% contribution by themselves as promoters, the regulator has now decided to allow such start-up promoters to meet this requirement with help of SEBI-registered registered AIFs.


AIFs or alternative investment funds are a newly approved class of investors which include private equity (PE), SME, infrastructure, venture capital funds, among others.


However, the contribution of these AIFs would be capped at 10% to meet the promoter share lock-in guidelines.


The proposal has been approved by the SEBI board and would be soon incorporated into the relevant guidelines.


SEBI is of the view that such a step would encourage the professional and first-generation entrepreneurs to tap the capital market to raise funds.


The decision was taken after a recommendation in this regard by SEBI's Primary Market Advisory Committee (PMAC).


The PMAC was of the view that in the companies founded by professionals or first-generation entrepreneurs, where the post-IPO equity held by promoters is less than 20%, AIFs could be permitted to provide the balance equity, subject to a minimum 10% being contributed by the promoters.


The PMAC also suggested that the capital contributed by AIFs for this purpose shall be locked in for two years.


SEBI, however, decided that the requirement of lock-in of three years should uniformly apply to both Promoters and AIFs.


Further, SEBI has decided to review the lock-in tenure at periodic intervals, as per the international practice.


The promoters are allowed to pledge their locked-in shares as collateral security for any loans granted for financing one or more of the objects of the issue, provided pledge of shares is one of the terms of sanction of the loan.


The PMAC had suggested a relaxation in this regard by allowing pledging of locked-in shares for loans taken by the company for other objects of its business, as laid down in its memorandum and articles of association.


SEBI, however, rejected the idea, as it felt that the existing restrictions were aimed at ensuring the commitment of the promoters towards the objects of the issue.


Was it too early to say IMD is off the mark?

Looking at the weather charts and various signs, there would be more rains in next few days. This may also tell the so-called experts that this time the IMD was accurate in its earlier forecast, which it was ‘forced’ to lower

The India Meteorological Department (IMD) had cut its monsoon forecast for September due to likely warming of the Pacific Ocean, popularly known as the El Nino phenomenon. However, looking at the current deficiency of 14% and rainfall of 86%, and few more days left for the seasonal rains, there are chances that this time the monsoon would be normal or near the initial forecast of the IMD.


According to IMD’s latest update to us, there will not be an El Niño effect on the monsoon as chances of its occurrence is receding. Temperature in the Pacific Ocean is okay and in September, the rainfall is expected to be better than the IMD forecast,” agriculture secretary Ashish Bahuguna told PTI.


While the IMD was more in the range in the monsoon forecast, the question remains, why it cut its earlier prediction? There may be one common reason, criticism by the media and ‘experts’. This may have forced the IMD to cut its monsoon forecast to 85% from earlier 94% of the long period average (LPA).


“The Indian media over-reacts and goes practically overboard and overdoes things, not only on the monsoons but practically on each and every issue. Take their hype on the monsoon failures. The consequence was it gave a space for speculators to harden food commodity prices unnecessarily that hurts the poor,” says Rajan Alexander, who runs a blog


The current deficiency is about 13% or rainfall is now nearly 87% of LPA. The chances are from now to September there are going to be very good rains and we can see the deficiency fall dramatically further. “Maybe it is too premature, it is not prudent to take the weather for granted, but in a week or 10 days we will receive better evidence whether the IMD’s initial forecast of a normal ‘monsoon’ is on the on its way of being realized. If so, it would have succeeded in hitting the bulls-eye when all global models have failed. If it wasn’t for media pressure, the IMD would have done India proud,” Mr Alexander said. 


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