Sebi mulls stricter warrant norms

Promoters to face heat on Preferential issues.

The Securities and Exchange Board of India (Sebi) plans to tighten guidelines under which promoters make preferential allotments of warrants.

The proposals include prohibiting promoters from voting at shareholder meetings at which warrant issues are put to vote and prohibiting warrant issues to promoters who did not subscribe to their earlier warrants.

Till recently, promoters were issuing warrants, which would eventually be converted into shares, to themselves by paying only 10 per cent of the money when warrants are issued. Sebi has raised the 10 per cent advance payment to 25 per cent and added the stipulation that promoters will have to forfeit the advance if they don’t subscribe to the full issue.

Last year, the steep fall in the stock market saw many promoters letting their preferential warrants lapse. Between April 2009 and October 6, 2009, promoters of 51 companies — including larger industrial houses and some state government-owned corporations — let preferential warrants lapse and promoters of 12 companies opted for only part conversion.

These norms are expected to be part of larger primary market reforms that the regulator is considering. The proposals are being discussed with Sebi's primary market advisory committee after which public opinion may be sought.

Sebi is also seeking public response to a proposal to ask institutional investors to pay in full for the shares for which they apply in an Initial Public Offer (IPO), against the current practice of paying only 10 per cent upfront. Sebi's contention is that this part-payment results in artificial subscription which impacts investor interest.

Last month Sebi’s primary market advisory committee discussed a proposal to keep IPOs open for two or three days for institutional investors before opening them for retail investors. The committee did not reportedly come to a conclusion.

Sebi is also planning to simplify the “application supported by blocked amount” (ASBA) process by incorporating an applicant coding mechanism through which demographic and other details of applicants would be pre-filled.

This will enable the applicant to key in his code number and get an application form in which he needs to fill up only the number of shares for which he applies and the applicable amount.

Sebi is also examining whether the scope of ASBA can be expanded to institutional investors. At present, it is available only for retail investors. Discussions have already begun with intermediaries.

Under the ASBA process, applicants to public issues can have their application money blocked in a special account so that they have to pay only when shares are allotted to them.