90% Subscription Floor For Issues May Be Waived
The Securities and Exchange Board of India (Sebi) is considering a proposal to allow companies to decide the level of an issues success and is expected to discuss the move with the department of company affairs (DCA).
While the Companies Act allows firms to decide the level of success, one of its Schedules stipulates that unless an issue garners 90 per cent of the issue amount, the funds have to be refunded to the investor. Similar provisions exist in the Securities and Exchange Board of India guidelines too.
We are trying to remove some of the contradictions, Sebi chairman D R Mehta said.
Allowing either of the two options will also ensure that issuers do not resort to moves like backdating of applications to see the issues through, he added.
For instance, if allowed, a company may decide that 60 per cent is the level where it considers an issue to be successful. The company also announces this in the prospectus. The securities market watchdog is also examining whether companies can provide safety nets of levels higher than the existing limits to boost investor confidence.
According to Mehta, the primary market guidelines were being reviewed by a working group to remove anomalies.
The securities market watchdog is also looking at another option to arrest failures of public issues.
It may allow companies planning issues without underwriting an additional 60 days after the closure of the issue to bring in the funds.
Either of these two steps would go a long way in boosting the primary capital market by ensuring that underhand deals and irregularities in artificially bailing out troubled issues did not take place.
It also makes it clear what the alternate arrangements are for funding of the project for which the issue is being launched.
That way the company gets the leverage against the issue flopping, while the investors also know the companys exact arrangements.
The other option before Sebi is to allow companies 60 days more after the closure of the issue, even if the issue is not underwritten. While this provision exists for underwritten issues, extending it to issues without underwriting will allow corporates more flexibility to see their issues through, without resorting to dubious means, it is felt.
The safety net limit of 1,000 shares per investor is also being looked at afresh with the aim of understanding whether this can be raised to increase the level of investor confidence in the capital market.