Disclose fund utilisation of warrants: Sebi to companies

To bring more transparency in capital markets, the Securities and Exchange Board of India (Sebi) on Wednesday said listed firms would have to disclose details of the utilisation of funds raised through warrants. The new rule, a part of its amendments to the equity listing agreement, will take effect immediately.

“In order to enhance disclosure requirements, listed entities have been mandated to disclose utilisation of funds raised upon conversion/exercise of warrants issued along with the public or rights issue of specified securities,” Sebi said in a circular. A warrant is the right, but not the obligation, to buy or sell a certain quantity of an underlying instrument at an agreed price.

Experts say this is in continuation of the regulator’s policy to monitor the use of proceeds of money raised through different market instruments. V K Sharma, head, private broking and wealth management, HDFC Securities, says, “Already, promoters have to declare the usage of money being raised through rights issues. This is an extension of Sebi’s ‘usage control’ policy for promoters raising money through different instruments.” There have been reports in the recent past that the market regulators may ask merchant bankers to monitor the end use of funds by companies taking the initial public offer route.

Others like SMC Capital’s Jagannadham Thunuguntla believe this will also reduce speculation. “Many times, the company’s share price is much higher than the conversion price. The promoter, in such circumstances, is able to raise cash by selling the converted warrants without having to specify where the money will be used. This move will reduce such activities,” he says.

The regulator has, in the past few days, brought a number of changes in its listing norms.

Earlier this month, it notified the Institutional Placement Programme (IPP) guidelines to allow companies to reduce promoter shareholding through private placement. The move is expected to help the government in its divestment process.

According to the new IPP norms, companies would even be allowed to issue fresh equity to institutional investors to dilute promoters' stake. It also permitted promoters of the top 100 companies to quickly dilute their shares through a separate window on the Bombay Stock Exchange and the National Stock Exchange. That would have to be completed within a day. Yesterday, Sebi had modified norms for share buybacks through the tender offer route under which companies would have to reserve 15 per cent of the offer for small shareholders