Securities & Exchange Board of India (Sebi) on Thursday, 16 August 2012, approved a host of reforms to revitalise the primary market. To widen the distribution network of IPOs, in addition to the existing channels, the nationwide broker network of stock exchanges at more than 1,000 locations will be made available for distributing IPOs in electronic form. Investors can approach any of the brokers in these locations for applying in IPOs, either physically or electronically. The facility of ASBA will also be extended to applicants coming through this mode. The brokers uploading the electronic applications form will be adequately compensated by the issuer companies. To further reduce the time taken from issue closure to listing, the reach of ASBA would be enhanced by mandating all ASBA banks to provide the facility in all their branches in a phased manner. Suitable incentive structure to issuers/brokers/banks will be put in place to encourage use of ASBA by retail individual investors, Sebi said in a release.
The share allotment system will be modified to ensure that every retail applicant, irrespective of his application size, gets allotted a minimum bid lot, subject to availability of shares in aggregate. The system will satisfy more number of smaller applicants in the oversubscribed issues. The minimum application size for all investors is also being increased to Rs 10,000-Rs 15,000 as against the existing Rs 5,000-Rs 7,000, Sebi said.
Sebi has also reduced the requirement of average free float market capitalisation from Rs. 5000 crore to Rs 3000 crore to facilitate further public offerings (FPOs) and rights issues through fast-track route. To encourage professionals and technically qualified entrepreneurs who are unable to meet the requisite 20% contribution by themselves as promoters, will be allowed to meet the same with the contribution of Sebi registered Alternative Investment Funds such as SME Funds, Infrastructure Funds, PE funds, VCFs, etc., subject to a cap of 10%.
To facilitate companies to reach minimum public shareholding requirements prescribed under SCRR, additional routes including Rights and Bonus Issue will be permitted. Sebi said it will also specify other options which may enable (non-compliant) listed entities to reach minimum public shareholding requirements prescribed under SCRR, 1957, subject to appropriate checks and balances. Further, modifications, if any, as may be necessary, to the existing methods, will also be carried out to make them more operable, Sebi said. To facilitate QIPs even in a falling market, issuers will be allowed to offer a maximum discount of 5% to the price calculated as per the Sebi regulations.
To improve the quality of public offerings and enhance investor protection, the eligibility criteria for the issuers coming through the “profitability route” is being redesigned. Now, only issuers with a minimum average pre-tax operating profit of Rs 15 crore will be able to come through this route. However, other issuers will continue to access the capital market through either the SME platform or compulsory book building route with increased QIB participation of 75%, as against the existing 50%. The price band alongwith relevant financial information will now be required to be published at least 5 working days prior to opening of the issue, as against the current provision of 2 working days in the case of IPOs. This will provide more time to the market to analyse the issue, Sebi said.