Sebi May Tighten Entry Norms Further

Primary market advisory committee meeting today

The Securities and Exchange Board of India (Sebi) is considering further tightening of entry norms for issuers raising money from the capital market. The markets regulator is considering prescription of a minimum dividend for the mandatory three-year track-record clause for corporates, said Sebi sources.

At present, only the companies with a three-year dividend payment track-record are allowed to tap the capital market. Sebi sources said the move to fix a minimum dividend, if implemented, would further put pressure on corporates to perform prior to going public.

The primary market advisory committee, comprising representatives of issuers, merchant bankers, investor associations and legal experts, will meet here today.

The committee will take up the employee stock option scheme, regulations for the private placement of debt, incentives in public issues, safety net in public issues for small investors and minimum 90 per cent subscription clause, among other issues, the sources said.

The pricing of the stock earmarked for employees will be the focus of discussions, it was learnt. The regulator is of the view that scrips offered to employees should be priced lesser than that of the public.

However, the company concerned will have the final say as regards the pricing, sources said. The committee reworking the Companies Act has called on Sebi to frame the capital market rules for such schemes in listed companies.

The issue of increasing the safety net limit in public issues from the present 1,000 shares will also be discussed in the meeting, the sources said.

The regulator presently gives an option to issuers to provide for safety net for small investors and makes it compulsory to disclose such a provision of safety net made.

The meeting will also discuss whether private placement of debt needs to be regulated. According to market players, since huge amounts to the tune of Rs 20,000 crore was raised through private placement of debt, there is a need for bringing such an offering under the purview of Sebi.

However, Sebi is of the view that the private placement of debt is a matter between the company concerned and the investor, who is more informed than the general public.

"Merchant bankers want the private placement of debt to be regulated because they want to ensure their share in such a huge market. They are trying push their interest forward by urging regulation of such placements," said a Sebi source.

As regards the 90 per cent minimum subscription clause, the markets watchdog is of the view that it could be relaxed only after extensive debate.

Sebi will take into consideration the various options available to the promoter before a relaxation in this regard, the source said.