Sebi rule delays QIP-bound govt banks

Those with promoter holding over 75% need approval for this route, the regulator decided in November

A three-month-old circular from the Securities and Exchange board of India (Sebi) has come in the way of several public sector banks (PSBs) going to the market with plans to raise capital through Qualified Institutional Placement (QIP).

At least 10 PSBs, including three associates of State Bank of India, come under the purview of the circular. It requires companies with high promoter holding to take permission for QIPs, causing a delay of one to two months.

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IDBI Bank got a clearance from its board of directors for a Rs 3,700-crore QIP in November. On December 31, when it got government clearance, the shares closed at Rs 88.9 each on the BSE. Since the promoter holding was over 80 per cent, the bank wrote to Sebi for allowing a QIP in January. By the time it got the clearance on February 16, the stock had lost 41 per cent in value, closing at Rs 52.25. “It should not be taken as a precedent,” Sebi made clear in its letter to IDBI, suggesting future QIPs would need separate permissions.

With the shares rallying this week following positive announcements from the Treserve Bank and the government, the bank said it was putting the QIP on hold. On Wednesday, IDBI shares closed at Rs 64.

QIPs normally do not require prior permission from Sebi. The ability to hit the market quickly has made these a preferred capital raising route for listed entities. Sebi issued the circular in November, listing the methods to be followed by companies to achieve minimum public shareholding norms. The circular was applicable to those where promoter holding was over 75 per cent. The circular allowed six methods, including a public issue, offer for sale and institutional placement. QIP was not one of these methods.

However, the circular had allowed room for “Any other method as may be approved by Sebi on a case to case basis”. Adding: “For this purpose, the listed entities may approach Sebi with appropriate details. Sebi would endeavor to communicate its decision within 30 days from the date of receipt of the proposal or the date of receipt of additional information as sought from the company.”

According to data from the Business Standard Research Bureau, as of December 2015, there were 10 PSBs, three being associates of SBI, which came under this category. Apart from IDBI Bank, there are Indian Bank, Central Bank, United Bank of India, Punjab and Sind Bank, Bank of Maharashtra and Indian Overseas Bank. State Bank of Mysore, State Bank of Travancore and State Bank of Bikaner & Jaipur are the others.

“The methods allowed by Sebi are primarily focused at bringing down the promoters’ stake. In the prevailing environment, who will buy government’s shares? In any case, that would not help the capital requirements of banks. This circular is adding to the trouble,” said a senior professional who is helping these banks in Sebi matters.

Given the market volatility, the time gap is adding to the tough capital raising environment faced by banks, investment bankers said. QIP has been one of the most popular capital raising routes for corporate India in the past couple of years. Primarily due to the speed and flexibility it offers issuers. According to data from Prime Database, listed companies had raised Rs 19,000 crore via 32 QIPs in 2015. In 2014, the route had seen mobilisation of Rs 31,684 crore.