Pri­mary Boost:

The SEBI's new norms could help the al­ready heated-up In­dian IPO mar­ket fare bet­ter in com­ing months.

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The SEBI's new norms could help the al­ready heat­edup In­dian IPO mar­ket fare bet­ter in com­ing months.

Aprice band can be an­nounced two work­ing days be­fore com­mence­ment of an ini­tial pub­lic of­fer (IPO). This was one of the ma­jor de­ci­sions taken by the Se­cu­ri­ties and Ex­change Board of In­dia (SEBI) in its re­cent board meet­ing.

The cap­i­tal and com­modi­ties mar­ket reg­u­la­tor ap­proved var­i­ous amend­ments to the Is­sue of Cap­i­tal and Dis­clo­sure Re­quire­ments) Reg­u­la­tions ( ICDR Reg­u­la­tions) at the board meet, mak­ing it eas­ier to raise cap­i­tal from the mar­ket. While ap­prov­ing amend­ments to the ICDR Reg­u­la­tions, the board con­sid­ered the rec­om­men­da­tions of the pri­mary mar­ket ad­vi­sory com­mit­tee and the pub­lic com­ments re­ceived on a con­sul­ta­tion paper.

Ac­cord­ing to the reg­u­la­tor, the amend­ments are mainly aimed at sim­pli­fy­ing the lan­guage, re­mov­ing re­dun­dant pro­vi­sions and in­con­sis­ten­cies as well as up­dat­ing ref­er­ences to Com­pa­nies Act, 2013. Talk­ing to re­porters af­ter the board meet­ing, SEBI Chair­man Ajay Tyagi said that changes to takeover as well as buy­back reg­u­la­tions have been ap­proved.

Is­suer-friendly rules

At present, the price band has to be an­nounced five work­ing days be­fore an IPO opens for sub­scrip­tion. "The re­quire­ment of an­nounc­ing the price band five work­ing days be­fore open­ing of the is­sue would be re­duced to two work­ing days be­fore open­ing of the is­sue," the SEBI has said in a re­lease. With re­gard to pub­lic and rights is­sues, the fi­nan­cial dis­clo­sures will have to be made for three years as against the present re­quire­ment of five years.

Ac­cord­ing to the re­lease, re­stated and au­dited, fi­nan­cial dis­clo­sures in the of­fer doc­u­ment will only be on a con­sol­i­dated ba­sis. Be­sides, the au­dited, stand­alone fi­nan­cials of the is­suer and ma­te­rial sub­sidiaries will need to be dis­closed on the web­site of the is­suer com­pany.

"Thresh­old for sub­mis­sion of draft let­ter of of­fer to SEBI in case of rights is­sues will be in­creased to Rs 10 crore as against the ear­lier pre­scribed Rs 50 lakh," the SEBI's re­lease adds.

The mar­ket reg­u­la­tor has also ap­proved changes to takeover reg­u­la­tions, wherein en­ti­ties will get ad­di­tional time for up­ward re­vi­sion of an open of­fer price dur­ing the share-ten­der­ing pe­riod. Be­sides, buy­back reg­u­la­tions will also be amended.

In this re­gard, changes will be made to the SEBI (Sub­stan­tial Ac­qui­si­tion of Shares and Takeovers) Reg­u­la­tions, 2011. "It has been de­cided to grant ad­di­tional time for up­ward re­vi­sion of open of­fer price till one work­ing day be­fore the com­mence­ment of the ten­der­ing pe­riod," the SEBI has said. The watch­dog will be re­fram­ing buy­back reg­u­la­tions with in­clu­sion of a def­i­ni­tion of the buy­back pe­riod.

The SEBI is also plan­ning to amend var­i­ous norms gov­ern­ing en­ti­ties un­der­tak­ing third-party as­sign­ment un­der the se­cu­ri­ties law. The mar­kets reg­u­la­tor will is­sue a con­sul­ta­tion paper on the sub­ject.

In a re­lease, the SEBI has said that fidu­cia­ries in the se­cu­ri­ties mar­ket have a sig­nif­i­cant role to play in terms of cred­i­ble re­port­ing of dis­clo­sure, fi­nan­cial in­for­ma­tion and com­pli­ance with reg­u­la­tions.

Fidu­cia­ries, such as mer­chant bankers, credit rat­ing agen­cies, cus­to­di­ans, deben­ture trustees and reg­is­trars to an is­sue, are reg­is­tered with the SEBI. How­ever, many oth­ers, in­clud­ing char­tered ac­coun­tants, com­pany sec­re­taries, cost ac­coun­tants and valuers, who take up as­sign­ments from is­suers or mar­ket in­ter­me­di­aries, are cur­rently not reg­is­tered with the SEBI.

Against this back­drop, the SEBI board has ap­proved is­suance of a

"The amend­ments are mainly aimed at sim­pli­fy­ing the lan­guage, re­mov­ing re­dun­dant pro­vi­sions and in­con­sis­ten­cies as well as up­dat­ing ref­er­ences to Com­pa­nies Act, 2013."


con­sul­ta­tion paper to amend var­i­ous reg­u­la­tions in re­spect of en­ti­ties that un­der­take third-party fidu­ciary as­sign­ment un­der se­cu­ri­ties laws.

This will cover as­sign­ments taken up for is­suers, pooled in­vest­ment ve­hi­cles, in­ter­me­di­aries and mar­ket in­fra­struc­ture en­ti­ties.

Be­sides, the board has also de­cided to do away with the cat­e­gory of sub-bro­kers as mar­ket in­ter­me­di­aries. "No fresh reg­is­tra­tion shall be granted as sub-bro­kers. Reg­is­tered sub- bro­kers shall mi­grate to au­tho­rised per­sons or trad­ing mem­bers. Sub-bro­kers who do not choose to mi­grate, shall be deemed to have sur­ren­dered their reg­is­tra­tion as sub­bro­ker," the re­lease has said. The reg­u­la­tor will pro­vide a suit­able time to fa­cil­i­tate the tran­si­tion.

The mar­ket reg­u­la­tor has also ini­ti­ated en­force­ment ac­tions against var­i­ous en­ti­ties in the NSE co-lo­ca­tion case. The watch­dog has been prob­ing the al­leged lapses in high- fre­quency trad­ing of­fered through the NSE's co-lo­ca­tion fa­cil­ity. "We have re­ceived the NSE in­ves­ti­ga­tion re­port in the co-lo­ca­tion case and have ini­ti­ated en­force­ment ac­tions," Mr Tyagi has added.

Wel­come changes

Mean­while, changes in the pri­mary mar­ket brought in by the SEBI, such as re­cast­ing cap­i­tal-rais­ing norms for com­pa­nies and eas­ing dis­clo­sure re­quire­ments, are likely to help fur­ther the al­ready heated-up In­dian IPO mar­ket.

Mar­ket watch­ers note that while some of the moves are in in­vestors' in­ter­est, they are still un­likely to kill the grey mar­ket. Jimeet Modi, the CEO and founder of Samco Se­cu­ri­ties, notes that the de­ci­sions may have no im­pact on the grey mar­ket.

In times of fast-mov­ing in­ter­net, where bank­ing trans­ac­tions are be­ing con­ducted on­line and mes­sages be­come vi­ral within sec­onds, the grey mar­ket will still ex­ert in­flu­ence ir­re­spec­tive of the cur­tail­ment of IPO pric­ing time­line to two days from five, he adds.

"The reg­u­la­tions are quite is­suer­friendly. They will help more and more com­pa­nies raise funds from the cap­i­tal mar­ket with lesser risks. For ex­am­ple, the cut in time for price band an­nounce­ment to two days will re­duce mar­ket-re­lated un­cer­tainty for the is­sue, if the broader mar­ket sen­ti­ment is weak. Eas­ing of fi­nan­cial dis­clo­sure re­quire­ment will bring in more list­ings," points out Prime Data­base Manag­ing Direc­tor Pranav Haldea.

While a cut in the time­line for fi­nan­cial dis­clo­sures to three years from

"The reg­u­la­tions are quite is­suer-friendly. They will help more and more com­pa­nies raise funds from the cap­i­tal mar­ket with lesser risks."

PRANAV HALDEA MD, Prime Data­base

five is ex­pected to bring in more list­ings, that move is not seen as a big pos­i­tive for in­vestors. An­a­lysts note that the longer the fi­nan­cial his­tory of an is­suer is avail­able, the bet­ter it is for in­vestors to un­der­stand the com­pany's back­ground. Af­ter all, num­bers speak loud and clear, they add.

The SEBI's changes in pri­mary mar­ket norms come at an in­ter­est­ing time. Glob­ally, In­dian ex­changes recorded the high­est IPO ac­tiv­ity as the coun­try saw 90 IPO launches that raised $3.9 bil­lion in the first half of 2018, ac­cord­ing to EY In­dia IPO Readi­ness Sur­vey Re­port.

The re­port adds that In­dian ex­changes recorded the high­est IPO ac­tiv­ity in terms of num­ber of deals ac­count­ing for 16 per cent of the to­tal is­sues in the first half of this year. In terms of pro­ceeds though, In­dian ex­changes ac­counted for a mere 5 per cent of global pro­ceeds in the Jan­uary-June 2018 pe­riod. The mar­ket reg­u­la­tor's new norms could help the In­dian IPO mar­ket bet­ter its record in terms of pro­ceeds too.

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