Block deal window: Sebi unlikely to revise rules despite elusive deals

Narrow price band of 1% hinders deal execution

The Securities and Exchange Board of India (Sebi) is unlikely to revise the rules governing the special block deal window, despite the ongoing challenges in deal execution, according to officials and industry insiders.

 

Currently, exchanges operate two 15-minute block deal windows — one from 8:45 am to 9:00 am, and another from 2:05 pm to 2:20 pm — on all trading days. Orders can be placed in these windows only if the sale price is within 1 per cent above or below the previous day’s closing price.

 

This narrow price band makes deal execution particularly challenging. Investment bankers have been lobbying with Sebi to widen the price band to 3 per cent to facilitate more deals through this window. However, the market regulator is expected to maintain the status quo.

 

“We recognise that the 1 per cent band is narrow, and some global markets allow a wider range. However, we intend to continue with the existing guidelines. Sellers can use the normal trading platform if they wish to offer a higher discount,” said a regulatory official.

 

Investment bankers report that over 90 per cent of block deals are conducted in the open market due to stringent rules. Only blue-chip companies with significant mutual fund and institutional investor interest can execute deals in the special window, they noted. 

 

Among the rare deals executed in the special window were Reliance Industries’ 4.5 per cent stake sale in Asian Paints to ICICI Prudential Mutual Fund and SBI Mutual Fund, and a 1.8 per cent disinvestment in Bajaj Finserv by promoters.

 

The primary advantage of conducting deals in the special window is that sellers can place shares with their preferred buyers. In contrast, under the normal trading window, sellers or investment bankers have no control over the buyer.

 

“It is a window created for large transactions to avoid market impact costs. If a large transaction occurs in the open market, it can have an immediate impact on market prices. In strategic sales, if conducted outside the special trading window, the anonymity of the parties involved can lead to unintended buyers or sellers,” said Mahavir Lunawat, group founder and managing director, Panthomath Financial Services group.

 

“A firm may not be able to sell its stake to its preferred buyer. The separate trading window facilitates strategic transactions and large shareholder transactions, and it will continue to have its place," Lunawat added.

 

In May, block deal activity surged to its highest level in nine months, with transactions worth nearly ₹70,000 crore executed. Most of these deals took place on the exchange platform. The strong block momentum continues this month, mitigating the urgency for the rule change.

 

"Many block deals are occurring at higher discounts due to increased volatility, making it difficult to fit price expectations within the 1 per cent band. A narrow band makes executing a deal through a separate trading window cumbersome. However, the inability to execute deals through the block deal window is not impeding transactions. As long as transactions are happening, the lack of regulatory relief regarding the price band is not a major concern. If relief comes, block deal execution will become slightly easier,” said Munish Aggarwal, managing director, Equirus. 

Kedaara offloads 19.6% in Vishal Mega Mart

 

Samayat Services, a Kedaara Capital firm, on Tuesday sold a 19.6 per cent stake in fashion retailer Vishal Mega Mart. The private equity firm sold 900 million shares at ₹113.6 apiece for of ₹10,223 crore. Investment bankers said the block deal was upsized due to robust investor demand. Among the major buyers were Kotak Mutual Fund (bought shares worth ₹1,882 crore), Kotak MF (₹903 crore) and HDFC MF (₹851 crore). Shares of Vishal Mega Mart fell ₹115, but recovered to end the session at ₹127, up 1.6 per cent. Prior to the stake sale, Kedaara, the company’s promoter, held 74.55 per cent stake.