India Inc's propensity to raise capital declining sharply: Sebi

Sinha warns firms of consequences for not complying with public shareholding norm

India Inc’s propensity to raise money from capital markets was declining sharply, U K Sinha, chairman of the Securities and Exchange Board of India (Sebi), said on Tuesday.

“Our decline is much more substantial among the BRIC countries (Brazil, Russia, India and China) or the rest of the world,” Sinha said at a seminar organised by the Confederation of India Industry here.

In 2010-11, Indian companies raised Rs 67,000 crore from the primary market; in 2011-12, this fell to Rs 15,000-16,000 crore. In the April 2012-February 2013 period, domestic companies raised about Rs 14,400 crore from the primary market.

Sinha said in the past three years, India Inc had shelved about Rs 60,000 crore of fund-raising proposals. Also, in the case of about 60 per cent of the initial public offerings in the last three years, shares have been traded below the issue price, month after month.

Minimum public shareholding
In 2010, Sebi had mandated listed private sector companies should have at least 25 per cent public shareholding. “There are 51 companies that have not taken any measure. I don’t want to issue a threat to them at this meeting. But I have made it very clear those not following Sebi guidelines for minimum public shareholding would suffer the consequences. And, those consequences are not very difficult to assume,” Sinha said.

The deadline to comply with the minimum public shareholding norm is June 2013.

Share buyback
To protect the interests of shareholders, Sebi plans to formulate new guidelines on share buyback soon. “We got the impression that some companies were trying to use the buyback regulations not to reward shareholders, but to manipulate the share price. So, keeping that in mind, we are coming out with a new buyback regulation. We are going to further tighten the norms,” Sinha said.

Sebi also plans to revise its insider trading regulations by the end of this year. Sinha admitted there was a need to improve disclosure requirements by promoters on the shares pledged by them. “I’m getting inputs that people have come out with creative solutions and they have created some instruments through which they are pledging, and not informing the stock exchange. I would like to assure very soon, we would take measures to ensure all these incidents are reported,” he said.

Regional exchanges
Sinha said regional stock exchanges in India had lost their relevance and the stock market regulator would encourage winding up these exchanges. He said the Hyderabad stock exchange had already been wound. In about a week, another regional stock exchange would also stop functioning, he added.

Sebi would also continue to take legal action against companies taking deposits from the public, promising to return double the money in three to four years. It would start a public awareness campaign to discourage retail investors from subscribing to the schemes of these companies.