Dca For Regulation Of Pvt Placements

The Department of Company Affairs (DCA) is in favour of regulating private placements of stocks. According to T S Krishnamoorthy, secretary of DCA, the working group set up for drafting the new Companies Bill has debated on the issue.

He told Business Standard: "We had a debate on the issue. However, we need a feedback from the industry to work out a way to regulate the estimated Rs 20,000-crore market. There has to be a demand from the market."

However, market players do not favour any regulation for private placement as they feel it is a deal between two players who are primarily institutions.

 

Says Prithvi Haldea of Prime Database: "It is very difficult to regulate the private placement segment as the issuers and subscribers are essentially large government organisations.

Of the total 18,804 crore raised through private placements last year, 90 per cent was mopped up by PSUs Also, an equal amount of subscribers to these issues are financial institutions and banks."

Investment bankers say that market players certainly do not want any regulation. However, some clear definitions and qualifications are required for both issuers and investors. Says Subodh Shinkar, vice president, JM Financial & Consultants: "There is a need to define what is private placement. For example, there is no clear view on whether a structured deal with a financial institution is a private placement. We also need to introduce the concept of Qualified Institutional Buyers (QIBs). There have to be minimum standards set for no regulations for private placements."

Haldea feels that there are promoters who actually sell 'public issues' through the private placement route. "The regulation needs to be to the extent of registration. For example Sebi should register private investments made by all listed companies.

Credit ratings for such placements should also be made compulsory. This will ensure that, in case of a fraud, proper records are available for scrutiny," he added.

Haldea also opines that the private placement has not hit the retail investor to a great extent as the government has been the major issuer and purchaser. He says: "Of the Rs 1776 crore raised by the private sector in the 1996-97 year, 75 per cent was raised by AAA-rated companies. Regulation is necessary for the remaining 25 per cent companies which sell their public issues under the name of private placements."

Market players, however, do not favour any regulation for private placement as they feel it is a deal between two players who are primarily institutions