Sebi pleases all, overhauls key Takeover Code clauses

Open offer trigger, size increased; transaction fee for MF distributors; single KYC for all market deals.

U K Sinha was in a please-all mood while announcing his first major set of decisions as the chairman of the Securities and Exchange Board of India (Sebi). 

While a key change in the Takeover Code will be a major relief for companies seeking to acquire or merge, reintroduction of a small entry load in mutual funds will make distributors happy. There are some goodies for retail investors, too, as the regulator has simplified the initial public offer (IPO) application form and provided for an abridged prospectus. 
 

HIGHLIGHTS OF SEBI BOARD MEETING

* TAKEOVER CODE

1. Open offer trigger increased from 15% to 25%
2. Open offer size increased from 20% to 26%
3. Non-compete fee scrapped

* MUTUAL FUNDS

1. Transaction charge of Rs 100 for old customers and Rs 150 for    new customers for investment of over Rs 10,000 
2. Sebi to allow common set of fund managers and research   analysts for different pooled assets like offshore funds and pension  funds 
3. Sebi to regulate mutual fund distributors

* SECONDARY MARKET

1. Unified and simplified know-your-client 
requirement; aadhar cards eligible for KYC
2. Single signature required to open a trading 
account instead of more than 50 at present

* PRIMARY MARKET

1. IPO form to be simplified 
2. Information document with the IPO form 
to include track record of merchant   bankers, comparison with peers

* NSDL

Sebi board to release the report of a two-member committee on IPO irregularities and DSQ Software to NSDL

A uniform KYC – Know Your Client – procedure across market intermediaries and a separate KYC Registration Authority are also on the anvil. 

TAKEOVER CODE
The capital markets regulator increased the open offer size from 20 per cent to 26 per cent, much lower than the 100 per cent proposed by the Takeover Committee under the chairmanship of C Achuthan. The open offer trigger limit, however, has been increased from 15 per cent to 25 per cent – in line with the proposal of the panel. 

Sinha said the rationale for increasing the open offer size was to create a level-playing field for all potential acquirers, an issue that was strongly highlighted by representatives of India Inc during meetings with regulatory officials. 

“In the absence of acquisition finance in our country, it was felt that (100 per cent offer size) would give outside acquirers an advantage,” said Sinha, while addressing the media. “While it is desirable, the decision was likely to have helped only one set of entities,” he added. 

Observers say it simplifies a complicated law. They said many investors, particularly private equity players, were not able to invest in listed companies in excess of 15 per cent because of the open offer requirement. Now, they can buy up to 25 per cent without having to make an open offer. 

Sourav Mallik, senior executive director, M&A, Kotak Investment Banking, and a member of Sebi's takeover panel, said raising the threshold from 15 per cent to 25 per cent would allow companies to access growth capital easily. “Though there is no direct relation between the Takeover Code and M&A deals, the regulatory changes will ensure better prospects of future M&A deals,” he added. 

Pavan K Vijay, founder, Takeovercode.com, said the new code struck a balance between promoters and acquirers. 

In another important decision, the regulator accepted the takeover panel’s recommendation on doing away with the non-compete fee. “There shall be no separate provision for a non-compete fee and all shareholders shall exit at the same price,” said Sebi. 

Though many said this was a welcome move as it did away with the discrimination against minority shareholders, industry chamber Confederation of Indian Industry was not happy with this. 

MF TRANSACTION CHARGE
The capital market regulator has allowed mutual fund (MF) distributors to levy a transaction charge of Rs 100 per subscription. This, however, will not be applicable if the investment is less than Rs 10,000. An additional Rs 50 can be charged from first-time MF investors. For systematic investment plans, the charge can be recovered in three or four instalments. These charges will be over and above the existing commissions. A common account statement will be sent to investors every month. 

In another relaxation to fund houses, the regulator allowed a common set of fund managers and research analysts for different pooled assets like offshore funds and pension funds. At present, fund houses have to maintain separate sets of people for such assets. 

Sebi will also regulate select distributors that account for a significant chunk of the total assets under management (AUM) by putting in place a due diligence process. “The regulation will cover distributors whose contribution to the industry is material...This will cover 50 per cent AUM,” said Sinha. 

SIMPLIFYING LIFE FOR INVESTORS
“The process for secondary market investors has been simplified and an investor will have to sign at only one place instead of 50,” said Sinha, terming the move “revolutionary”. 

The KYC norms have been made uniform across market intermediaries. A KYC Registration Agency will be set up. If more than one such agency was formed, inter-operability would be compulsory to allow data sharing, said Sinha. The size of the IPO application form had been reduced by almost one-fourth, he said. Further, there would be a single form for ASBA and non-ASBA applications. ASBA refers to Application Supported by Blocked Amount. In this, the money does not leave an applicant’s account till he has been allotted shares. A general information document will also be circulated along with the IPO form that will include information on lead managers’ track record, peer valuation and financial ratios to help investors take informed decisions. 

NSDL
The Sebi board has decided to release the two-member committee report in the matter of IPO irregularities and DSQ Software to NSDL for compliance. Sebi had invited a lot of criticism for its handling of the NSDL issue. The depository was pulled up for its acts at a time when former Sebi chairman C B Bhave was at its helm. 

DISCLOSURES
Listed companies have been asked to disclose the voting pattern to give investors an idea on how the various categories of shareholders vote on different resolutions. Initially, top 500 listed companies will have to make this disclosure on their websites. 

Merchant bankers will now be required to maintain due diligence records for verification or scrutiny by Sebi. These records would comprise due diligence activities related to issue management, takeover, buyback and delisting. The insider trading norms have also been amended and promoters will have to disclose if the change in stake is more than Rs 5 lakh in value or 25,000 shares or 1 per cent of the total shareholding, whichever is lower.