Sebi may widen scope of OFS route to help promoters monetise shareholding

Relaxation in FPI investment clubbing norms among other proposals likely to be discussed at Sebi's board this week

The Securities and Exchange Board of India (Sebi), the market regulator, is planning changes to the capital-raising framework to help more promoters divest their holdings and encourage start-ups to list. 

According to sources, Sebi is planning to widen the scope of the so-called offer for sale (OFS) route, a share-sale mechanism to help promoters monetise their shareholding.

At present, only the top 200 companies can use the OFS route. Instead, the regulator will allow any company with market capitalisation of more than Rs 10 billion to use this facility.

The move will help about 24 more companies. More importantly, it will bring a handful of state-owned companies including SJVN, Indian Bank and NLC India into the OFS ambit.

To boost start-up listings, Sebi plans to make wholesale changes to the institutional trading platform (ITP). It will be renamed innovator growth platform and linked to main stock exchange platform. Also, the eligibility criteria for listing and the share allotment process will be made much more lenient.

These decisions are likely at Sebi’s board meeting to be held on Wednesday. Other changes to the OFS framework include the option for an issuer to cancel the share sale if the institutional demand is inadequate. Currently, an OFS has to be kept open for two days — the first day for institutional investors and the next day for retail investors.

The OFS framework was introduced in 2012 to help companies achieve the minimum public requirement. So far, Rs 785 billion has been mopped up through OFS in 160 companies. The changes to the ITP platform are based on a discussion paper issued by Sebi’s expert panel in October.

Besides, other key decisions likely at the board meeting will include tightening insider trading regulations, changes to ownership norms for foreign investors, and the recovery process at Sebi.

Sebi sources say an entity belonging to the promoter group will have to make initial and continuous disclosures on their shareholding and share transactions exceeding Rs 1 million. Currently, such disclosures are applicable only to promoters and key management personnel.

To prevent misuse of beneficial ownership norms, Sebi plans to clarify that multiple entities having common ownership, directly or indirectly, of more than 50 per cent or common control shall be treated as part of the same investor group. Hence, the investment limits of all such entities shall be clubbed as applicable to single foreign portfolio investor (FPI).

However, common control will not be applicable if the FPIs are regulated by public retail funds such as mutual funds and insurance companies.

Sebi also plans to tweak its recovery framework by introducing a “difficult to recover” provision. Such dues will be identified separately. The parameters for “difficult to recover” include the death of an individual with no assets left behind or a person who is alive but is insolvent or has no attachable assets. Foreign entities with no presence or representative or attachable assets in India will be tagged “difficult to recover”.

According to the recent Sebi data, over 1,600 entities had defaulted on penalties worth over Rs 1.8 billion imposed till March this year, and got away without paying.

Other issues the Sebi board is likely to discuss include a valuation methodology for pricing corporate bonds, changes to the debenture trustee framework, and allowing custodial services in the commodity derivatives market to enable institutional participation.

 

Changes in the offing

• Market regulator looking to widen the scope of offer for sale (OFS) route. Among other changes, OFS framework may include the option for an issuer to cancel the share sale if the institutional demand is inadequate  
• Plans to make wholesale changes to institutional trading platform 
• Eligibility criteria for listing and share allotment process likely to be made much more lenient 
• Recovery framework may be tweaked