SEBI Unveils Measures to Revitalise Primary Market

In an effort to improve retail participation and boost the primary market, the Securities and Exchange Board of India announced a slew of measures on Thursday. They include reservation and discounts for retail investors under the offer for sale (OFS) mechanism and a hike in the minimum shareholding for public sector undertakings (PSUs).

“We have broadened the scope of OFS, which though well accepted by the market, has been criticised for no retail participation,” SEBI Chairman UK Sinha told reporters after a three-hour-long meeting of the SEBI board.

It was decided that there would be minimum 10 per cent reservation for retail investors in this mechanism. They could also be given a discount.

Introduced in 2011-12, the OFS or auction method is used to sell shares through stock exchanges and is used mainly for the Government’s divestment programme.

Wider scope

“We have also extended the scope of companies (that can use the OFS mechanism) to the top 200 companies from 100 earlier. We have also provided that not only the promoters group but also any entity owning 10 per cent or more can participate in an OFS through stock exchanges,” Sinha said.

He added that 10 per cent dilution in one go through the bourses would not be disruptive.

According to Prime Database, an independent primary market monitoring firm, a total of ?13,518 crore was mobilised through the OFS route in 2011-12, ?28,024 crore in 2012-13, and ?6,859 crore in 2013-14.

Public holding in PSUs

The regulator has also decided to bring the minimum public shareholding in PSUs at par with private sector companies. This means all listed PSUs will have to maintain a 25 per cent minimum public shareholding as against 10 per cent currently. Sinha said that 36 (out of 50) listed PSUs would have to comply with the norms within three years.

SEBI has also decided to remove the anomaly regarding issue size of an initial public offering (IPO). Now, the minimum dilution to the public in an IPO will be 25 per cent or ?400 crore, whichever is lower, for companies with post-market capitalisation (number of shares offered multiplied by issue price).

With this, Sinha said the existing anomaly would be corrected. At present, if the post-issue capitalisation was more than ?4,000 crore, the issuer was supposed to issue only 10 per cent or ?400 crore worth of shares. Whereas, if capitalisation is even a rupee less than ?4,000 crore, the promoters were required to issue 25 per cent shares, or close to ?1,000 crore.

Greater participation

Prithvi Haldea, Chairman of Prime Data Base, said that with the removal of this anomaly, companies with strong fundamentals or those expecting better valuation in the future would come into the market.

As a part of primary market reforms, the regulator also decided to increase the anchor investor’s bucket to 60 per cent from the current requirement of 30 per cent of the institutional bucket. It also permitted bonus shares issued a year prior to filing of the draft document for a public issue to be offered for sale. SEBI expects these measures to breathe new life into the primary market. 

Business Line, New Delhi, 20-06-2014