| India Equity Strategy SEBI Board Meeting: Aims to Boost Primary Market and Fund Raising | ||
· In its board meeting today, Capital Market Regulator SEBI announced a series of important measures. A minimum free-float requirement of 25% has been mandated for Public sector companies (PSUs), to be achieved over three years. Note that SEBI had mandated minimum free float requirement of 25% for private sector companies and 10% for PSU companies by the mid of last year. Given fiscal pressures, it is widely expected that the Government would be supportive of this measure.
· Currently, 21 PSUs of BSE 500 companies have a free-float of less than 25%. The market capitalization of required stake sale to achieve the norms stipulated, at the current market price, would be US$ 9.6 bn over three years. Coal India would account for the bulk (63%) of this stake sale.
Table 1: BSE 500 Companies with over 75% Government ownership
Company Name
|
Indian Central & State Govt. Promoters - Ownership (%)
|
Current Market Capitalization ( INR mn)
|
Stake Sale Requirement ( INR mn)
| |
Coal India Ltd.
|
89.7
|
2,488,963
|
364,633
| |
N M D C Ltd.
|
80.0
|
693,627
|
34,681
| |
N H P C Ltd.
|
86.0
|
290,605
|
31,850
| |
Neyveli Lignite Corpn. Ltd.
|
90.0
|
163,996
|
24,599
| |
Steel Authority Of India Ltd.
|
80.0
|
407,476
|
20,374
| |
Hindustan Copper Ltd.
|
90.0
|
102,514
|
15,377
| |
S J V N Ltd.
|
90.0
|
99,486
|
14,893
| |
Central Bank Of India
|
88.6
|
105,199
|
14,339
| |
M M T C Ltd.
|
90.0
|
94,650
|
14,198
| |
National Aluminium Co. Ltd.
|
81.1
|
148,707
|
9,012
| |
H M T Ltd.
|
90.0
|
56,592
|
8,489
| |
Indian Bank
|
81.5
|
82,301
|
5,358
| |
Bank Of Maharashtra
|
85.2
|
40,151
|
4,099
| |
United Bank Of India
|
88.0
|
25,352
|
3,296
| |
M O I L Ltd.
|
80.0
|
53,491
|
2,675
| |
I D B I Bank Ltd.
|
76.5
|
168,654
|
2,530
| |
Uco Bank
|
77.2
|
103,906
|
2,286
| |
State Trading Corpn. Of India Ltd.
|
90.0
|
13,071
|
1,961
| |
Rashtriya Chemicals & Fertilizers Ltd.
|
80.0
|
36,549
|
1,827
| |
Punjab & Sind Bank
|
81.4
|
19,876
|
1,276
| |
Bharat Electronics Ltd.
|
75.0
|
145656
|
29
| |
Total
|
577,781
| |||
Source: CMIE, J.P. Morgan
· Measures have been announced to expand the framework of Offer for Sale (OFS) of shares through the stock exchange mechanism. These include:
a. Reservation for retail individual investors – 1. Minimum 10% of the issue size shall be reserved for retail investors i.e. for investors bidding for amounts less than Rs. two lakhs. In case this percentage is not fully utilized, the unutilized portion may be offered to other investors. 2. Seller of shares may offer a discount to retail investors in accordance with the framework specified from time to time.
b. Allowing non-promoter shareholders to offer shares through OFS. Non-promoter shareholders having (a shareholding of) more than 10% or such percentage as specified by SEBI from time to time shall be eligible to use OFS. This is relevant for Sterlite’s 65% owned subsidiary, Hindustan Zinc (HZ, NC), as the Government looks to sell down its 30% stake. After the latest amendment, the Government would be able to sell down its 30% holding in HZ and move the transaction one more step forward.
c. Expanding the list of eligible companies. OFS mechanism shall be made available for shareholders of top 200 companies by market capitalization, from the current 100 companies.
· Minimum dilution to public in an IPO shall be 25% or Rs. 400 crore, whichever is lower, for companies with post capitalization of less than Rs. 4000 crore. This will remove the anomaly that a company just short of Rs. 4000 crore market capitalization, was required to dilute about Rs. 1000 crore while another company at Rs. 4000 crore market capitalization was required to dilute only Rs. 400 crore
· Increasing the investment bucket for anchor investors. In order to increase the share of serious, committed investors, SEBI has decided to increase the anchor investor’s bucket to 60% from the current requirement of 30% of the institutional bucket.
· Eligibility of shares for Offer for Sale in an IPO with respect to bonus issues on shares held for more than a year. The Board approved the proposal to permit bonus shares issued in last one year prior to filing of the draft offer document to be offered for sale, provided that these bonus shares were issued out of the free reserves or share premium.
· SEBI board has also approved measures governing
Preferential issues – replacing ‘closing price’ with ‘volume weighted average price’
ESOPs – including secondary market acquisitions, enhanced disclosures and better enforceability
KYC norms – including sharing of KYC information with entities regulated by other financial sector regulators
Research Analysts – seeking to register and regulate individual research analysts and entities engaged in issuance of research reports
These measures are well-intentioned and well-timed in our view, given the enhanced investor sentiment and a more important role capital markets could play in reviving the growth ahead.
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