Financial Daily from THE HINDU group of publications
Saturday, Aug 27, 2005
Regulatory Bodies & Rulings
Markets - IPOs
Industry & Economy - Investor Protection
SEBI to end discretionary share allotment to QIBs
BETTER DEAL FOR RETAIL INVESTORS: Mr M. Damodaran, Chairman, SEBI, and Mr Pradip Kar, Executive Director, at a press conference in Mumbai on Friday. Shashi Ashiwal
Mumbai , Aug. 26
THE Securities and Exchange Board of India has decided to amend the share allotment norms for institutional investors in public issues.
According to the decisions taken at the SEBI board meeting today, the allotment of shares to qualified institutional buyers (QIBs) in public issues should be made on proportionate basis as is the case with retail investors and not at the discretion of the merchant bankers.
Preferential treatment to MFs: SEBI has also decided to give preferential treatment to mutual funds in public issues. Out of the 50 per cent shares reserved for QIBs, five per cent has been kept for mutual funds. They can also apply for more shares out of 45 per cent shares reserved in the QIB segment.
10 per cent margin: SEBI board has also made it mandatory for QIBs to pay 10 per cent of the value of the shares upfront while making their bids. At present, QIBs need not make any advance payment while applying for public issue shares, whereas retail investors and high networth individuals have to make full payment on application.
"SEBI has decided to do away with the present norm of discretionary allotment to qualified institutional buyers and follow the pattern of proportionate allotment to QIBs," the Chairman of SEBI, Mr M. Damodaran, told presspersons after the board meeting.
Currently, 50 per cent of shares in public issues is reserved for QIBs, allotment of which is made at the discretion of investment bankers.
Minimum holding for listed cos: In order to improve liquidity in the stock market, the regulator has also prescribed the minimum 25 per cent public holding for listed companies, which they will have to meet in two years.
Mr Damodaran said all shades of opinion were factored into this decision and was in the interest of larger public.
Referring to the decision of having a minimum 25 per cent public holding for listed companies, Mr Damodaran said listed companies were governed by different rules depending on the time of their listing. This decision, to be implemented in a non-disruptive manner, would lead to more shares of the company getting traded in the market.
"For the present there are two categories of companies - one with minimum 25 per cent public holding and the other with 10 per cent. All listed entities will get two years to meet this criterion," he added.
This guideline will not apply for government companies, infrastructure companies and BIFR companies, Mr Damodaran said.
Those companies where the public holding is reduced to below 25 per cent due to corporate debt restructuring will have to make up the shortfall within a year.
"In the long term, the idea is to move towards a uniform minimum public holding to 25 per cent but in a phased manner," he said. However, there is no time frame for this.
He said companies that fail to comply with these regulations, would have to face penalties.
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