Sebi Plans To Define Qibs

The Securities and Exchange Board of India is planning to define a new category of investors, Qualified Institutional Buyers (QIBs). According to Sebi sources, only such qualified institutional buyers will be able to take part in private placements of securities.

"We are considering allowing listed companies only to place debt instruments with QIBs, irrespective of the number of investors. In future, whenever a company is interested in placing debt privately, it can do so with a set of QIBs," a Sebi source said.

The Sebi move assumes significance as there is a growing concern in the market about the large number of private placements. One way of stopping firms from misusing the private placement route is by defining QIBs. "These would typically mean having only those investors in an issue who know the business of investing in securities", said Sebi sources.

However, Sebi sources say that there is no consensus within Sebi on the issue.

With regard to equities, Sebi officials are of the view that an issue of capital by companies to a select set of issuers becomes a preferrential offer.

"We have preferrential issue guidelines for an issue of capital as far as equity issues go," the source added.

According to a section of Sebi officials, Sebi has mooted an idea of defining a specific number of investors for an offering. "We are saying that if an issue has more than 100 investors, then it should be deemed as a public issue. This is irrespective of the category of the investor.

He can be a small investor close to promoters or an institutional buyer. Our key intention is to protect the small investor," another official said.

According to leading market players, the definition of QIBs becomes crucial for private placements and bookbuilding. Analysts say that with a list of QIBs defined by Sebi, an issue can be made exclusively for QIBs.

Sebi is primarily irked at the public manner in which private placements have been made. According to prime database, about 153 issuers have raised Rs 30,944 cr in 1997-98.

The logic behind defining the qualified institutional buyer in debt can be understood from an observation made by Prithvia Haldea, managing director, Prime Database. He says that while on one hand, the major mobilisers in private placements are financial institutions and banks, majority of the investment is also by institutions like banks, financial institutions, provident funds, trusts and rural banks.

"This does not reflect direct mobilisation of household savings," he said.

According to A R Barwe, managing director, SBI Caps, the initiative is a positive development for private placements. "The only market where we see some activity is the private placements. If we have a clearly defined list of QIBs, issues can be sold off to QIBs and may be later offered to public," he said.

Shitin Desai, vice-chairman and managing director of DSP Merrill Lynch believes that there is no need to protect the QIBs. "There are certain rules in other markets like exempt issues, where normal investor protection guidelines like disclosure standards are not applicable. It is important to define such set of investors irrespective of the number of investors allowed in an offering," he said.