Sebi proposes special call auction for price discovery of holdcos

Move aims to address deep discounts at which these investment companies trade

The Securities and Exchange Board of India (Sebi) on Friday proposed a new framework for price discovery of listed investment holding companies (holdcos) to address the gap between their traded price and book value.

Investment holding companies (IHCs) are firms that only hold investments in different asset classes including shares of other listed companies, mostly belonging to group firms. These IHCs usually trade at a high discount to the value of their holdings.

“A special call-auction mechanism without price band may be enabled for listed ICs and IHCs, whose shares are trading beyond a certain discount to their book value,” said Sebi in a consultation paper. Price band refers to thresholds like 5 per cent, 10 per cent, or 20 per cent put in place to keep volatility in check and place risk management and surveillance measures in place.

Under the proposal, stock exchanges will have to provide a special call auction mechanism for such companies. The exchanges will have to give a seven-day prior notice before initiating this special call auction. This mechanism will be considered successful if at least 5 unique buyers and sellers participate in the call auction.

Tata Investment Corporation, Bajaj Holdings & Investment, Kalyani Investment, Summit Securities, and Pilani Investments are some of the IHCs listed on the Indian exchanges. Of the 70 listed investment companies and IHCs, 28 have 25 per cent or more of their assets invested in shares of other listed companies. Out of these 28 companies, 16 have their six-month average volume weighted average price (VWAP) at a discount to their book value.

Further, the market regulator has also specified criteria for the selection of the IHCs that will be eligible for this framework.

For instance, only those IHCs will be eligible which have at least 50 per cent of the total assets invested in the shares of other listed companies and the 6-month VWAP of the security is less than 50 per cent of the book value of such companies. This special call-auction mechanism may be provided only once a year for these investment companies. The market regulator has sought comments on the proposals by May 10.