Search the Internet            Tips

SEBI eases IPO rules for firms

India's stock market regulator slashed on Friday the minimum stake a company must offload in an initial public share offering and tightened rules for calculating mutual funds' net asset values.

The changes, to take effect early in the new year, are part of efforts by the Securities Exchange Board of India to fine tune domestic bourses following big reforms in the late 1990s designed to bring India in line with global capital markets.

In a move to create a level playing field, the regulator, SEBI, extended to all companies the right to offload just 10 per cent of their post-issue capital instead of the current minimum of 25 per cent.

Earlier, only firms in the information, communication and entertainment sectors were allowed to offer 10 per cent.

SEBI chairman D R Mehta said the rules were relaxed to avoid discrimination against firms.

He warned against misuse of the new rules through price manipulation as a consequence of the reduced liquidity.

The regulatory body also decided to cut the minimum offer size to Rs 1 billion from Rs 2.5 billion earlier, Mehta told reporters after a board meeting.

He added it would be compulsory for such issues to carry out a book-building process involving the sale of shares to a closed loop of institutional buyers.

Scraps minimum

SEBI abolished as well the minimum offer size of Rs 250 million for IPOs made through the book-building route.

A SEBI official said the move would ensure that small companies tapping the capital markets for the first time had a chance to achieve a better price for their shares.

SEBI also tightened rules against illiquid securities held by mutual funds, defining as "non-traded" any security which has not been traded for 30 days from 60 days earlier. SEBI said mutual funds cannot assign value to illiquid securities when they exceed 15 per cent of a scheme's assets.

"Any illiquid security above 15 per cent of the total assets shall be assigned zero value," Mehta said.

Officials said these changes were aimed at making the net asset values of mutual funds more reliable.

Mehta said SEBI's drive for greater transparency and adequate disclosure by mutual funds had led to more people pumping their savings into such investment vehicles.

"Gross collections for mutual funds have crossed Rs 540 million in the first eight months of the year. If this trend continues, they should be able to end the year (April-March) with Rs 750 million," he said.

Mutual funds collected Rs 610 million in 1999-2000.

The SEBI board also approved a decision by the federal government to abolish a rule denying a key tax exemption to venture capital funds that did not exit companies in which they invested within 12 months of the firm going public.

Tell us what you think of this report