Govt Plans Fungibility In Global Floats

The government is likely to permit fungibility on global equity offerings in the form of either American depository receipts or global depository receipts. Accordingly, corporates will be allowed to issue fresh GDR/ADRs in lieu of those which have been extinguished.

The government is also contemplating measures to ensure that the present trend of companies accessing international equity markets does not starve the domestic stock markets.

This will be taken up at a meeting being convened by the finance ministry in the next few days, sources said.

According to government officials, decks had been cleared for making domestic offerings mandatory for companies approaching the international markets with equity floats.

 

In a communication last year, the law ministry empowered the finance ministry to do so. The law ministry held that under the existing law, it was the finance ministry which had the powers to make the changes.

It is expected that the ministry will make the changes in law broadly along the lines proposed by the Securities and Exchange Board of India.

The sources revealed that the finance ministry was not likely to accept the initial suggestion that this be restricted to specific sectors like information technology.

Instead, it is likely to bring all the sectors within the purview of the scheme and fix a benchmark of around 10 per cent. Sebi, in its proposal made to the high-level committee on capital markets, had mooted the fixing of the share at 25 per cent.

The informal group on primary markets suggested in its report that this process be kicked off with public sector equity offerings.

"This can be tried with the public sector equity that is being offered for divestment. Most of these issues are perceived to be good, and if they are offered at a discount in the domestic market, there will be active trading in the secondary market," it said.

However, now with investor sentiment on the rise and a host of private sector companies going in for international offerings, the line of thinking has changed.

It is now felt that all companies should be required to make a domestic offering and, thereby, revive the primary market for equity issues.