Firms May Be Told To Prune Gdr Offer, Raise Local Funds

The plan was also discussed at a meeting of the regulator with the Association of Merchant Bankers of India (Ambi) recently. This essentially means that if a corporate is planning, say, a $100 million GDR issue, a part of this amount can be set aside for raising from the domestic market. This would also ensure that some good issues, which are currently going overseas, come to the domestic equity market.

Says Vijay Ranjan, executive director, Sebi: "We are toying with this idea. After all the aspects are thrashed out, we may send a representation to the finance ministry."

GDR issues are not handled by Sebi and, hence, the finance ministry would need to be involved. However, there are some hitches. For instance, corporates may well argue that they are being forced to go through a route which makes their cost of raising funds higher than what would have accrued through the GDR route.

 

It will have to consider the aspect that some companies requiring foreign exchange funding which can come only through the GDR route. In such cases, it does not make sense for these companies to come out with a domestic issue.

The other aspect is that GDR issues can be generally priced by corporates at a slight premium to the domestic market prices. However, in the case of domestic issues, the pricing has to be below the ruling secondary market price. This could also be another advantage for the corporates.

The employees stock options scheme is another aspect which is being looked at in detail to buoy the primary market. Employees' participation is being viewed by Sebi as being critical to the issues which get a good response in the market.

Sebi has already relaxed the 200 share per employee cap and the lock-in requirements for employee stock options and is now looking at the issue of pricing of these options. Currently, stock options have to be priced according to the preferential issue norms.

The regulator is looking at whether this can be relaxed for these options. There is, however, a general aversion in the marketplace to differential pricing, which Sebi would have to keep in mind. There is also an argument that there is no real need for differential pricing of stock options, since the employee himself should be committed to the company and the price after five years, till which he can exercise the option, can be much higher than the present price if the company grows.

Sebi is also looking at the issue of allowing companies to set up trusts to buy back the shares of the companies as a safety net for the investors. The Companies Act provisions relating to buying back of shares have to be kept in mind for this purpose. The converse view to this step appears to be that a company cannot be providing a safety net and buying back its shares through the trust route from shareholders' funds.

The primary market revival has been agitating the mind of the merchant banking fraternity and Sebi for long, and the Sebi-Ambi meeting, therefore, discussed the possible steps in detail. Ambi has also been asked to prepare a note on these proposals.

Primary package

* Getting a part of the GDR offerings earmarked for the domestic market

* Employee stock option being looked at in detail

* Safety net being looked at through the trusts route