Ahead of the SEBI board meeting on 30th September, there were already expectations of announcements on KPIs for digital IPOs, inclusion of mutual fund unit trades under insider trading regulations and monitoring of issue proceeds of preferential allotments. SEBI has addressed all these issues and more in its 30th September 2022 Board Meeting. Here is a gist of some of the key decisions at the SEBI Board meet.
1) KPI disclosure in case of public issues
This had become a hot topic of debate after several digital IPOs like Paytm, Policybazaar, CarTrade and Zomato underperformed post the public issue. While the SEBI has ruled out getting into pricing issues, it has now made some key announcements on disclosures.
· All IPO issuers have to make disclosure of key performance indicators (KPIs), which will enable the investors to take a more informed view.
· Going ahead, issuers have to disclose pricing logic based on past transactions, prior to the IPO. The issuer has to disclose the price of any new issue or private placement made in the last 18 months. This can extend as much as 3 years back.
· To give investors a better perspective of the pricing, the issuers must also disclose in the prospectus the ratio of the IPO price band to the weighted average cost of shares of such placements in the past.
· An independent committee of directors to certify that the price band for the IPO as justified based on quantitative factors like the KPIs, comparison of floor price and weighted average cost etc.
This is applicable to all IPOs and not just digital IPOs. However, it is likely to address the big issue of information asymmetry in the case of digital IPOs.
2) Enabling a smooth mutual fund investment journey
There were two important announcements pertaining to mutual funds in the SEBI board meeting. The first is more procedural in nature. To facilitate faster pay-out of dividends and redemption of mutual fund proceeds, the time limit has been cut from 10-15 days to just 3-5 days. This will reduce the liquidity lock-in for the mutual fund unitholders.
The second announcement pertains to the mutual fund fiasco that had played out at Templeton Mutual Fund in April 2020. The SEBI board also approved the inclusion of mutual fund units under SEBI provisions for insider trading. The new rules cover the definition of unpublished price sensitive information, a dedicated code of conduct for mutual funds and effective monitoring and reporting of such transactions by designated persons in the MF.
3) Rationalizing listing and primary market provisions
There have been several decisions taken in the SEBI Board meeting held on 30th September pertaining to listing and primary markets overall.
· All online bond platforms providers to be registered as stock brokers with SEBI under the debt segment. It will also issue a detailed circular on the mechanics and operations of the bond platform.
· SEBI has allowed pre-filing of IPO offer documents as an option to potential IPO issuers. The pre-filing mechanism is a limited interaction without disclosing sensitive data to public. This will run parallel to the current IPO approval mechanism.
· In case of OFS through stock exchange mechanism, the 10% minimum requirement for non-promoter shareholders has been done away with. The existing cooling off period for OFS of 12 week can be cut to 2 weeks, depending on the liquidity of the security. In addition, now retail investors can also bid on the unsubscribed non-retail portion.
· SEBI now insists on monitoring of issue proceeds even in the case of QIPs (qualified institutional placements) and private placements. This monitoring will be done by the CRAs where the issue size exceeds Rs100 crore. Currently, this is only mandatory for public issues and rights issue exceeding Rs100 crore.
4) Key shifts to the alternate investments space
Apart from some key changes to the traditional equity, debt and mutual funds space, the SEBI board meeting has also touched upon the alternate investments space in India. Here are some of the key announcements made.
· The minimum holding requirement of sponsors in the case of real estate investment trusts (REITs) has been reduced from the current 25% to 15%. This brings REITs on par with Infrastructure Investment Trusts (INVITs), where such a reduction is already done.
· Till now the SEBI has maintained separate regulatory frameworks for listed INVITs and unlisted INVITs. In the latest board meeting, SEBI has approved scrapping the separate legislation for unlisted INVIT and now there will be one single legislation for all INVITs, irrespective of whether these are listed or unlisted.
· SEBI will prescribe the timeline and the minimum corpus for alternate investment funds (AIFs) at which the First Close can be declared. SEBI has also clarified that any change in the sponsor or manager of the AIF would require the prior approval of SEBI.
· For open offers, the company making the offer is currently required to deposit the entire consideration in advance. This can become an issue in case of large open offers. Instead, the offeror can provide bank guarantee for the said amount, provided such guarantee is given by a scheduled commercial bank (SCB) with “AAA” rating.
5) Miscellaneous announcements made by SEBI
In addition to the above, the SEBI Board meeting has also made some other changes of importance to investors.
· SEBI is likely to permit net settlement of cash and F&O segment upon expiry of stock derivatives. Here, obligations arising under the cash segment can be settled on net basis. This will be beneficial to investors as it better aligns the cash and F&O segments and also reduces the margin requirements post expiry of F&O.
· Appointment of independent directors as well as their removal can now be authorized by an ordinary resolution rather than through special resolutions only.
· In an important move, the SEBI has done with the 60 days VWAMP (value weighted average market price) consideration for pricing of public sector units OFS. This is specifically so when there is likely to be a change in control from the government to a private party. This is likely to be relevant for the IDBI Bank strategic sale.
SEBI has tried to pack a lot of punch in the latest board meeting announcements. The focus now shifts to the implementation part of the story.