SEBI Board Meeting Two new methods for satisfying the public float Amendment to Buyback Regulations

The Securities and Exchange Board of India (SEBI) in its Board Meeting held on January 3, 2011 has relaxed the norms for buyback of shares and has provided for two new additional methods for satisfaction of the public float..The Securities and Exchange Board of India (SEBI) in its Board Meeting held on January 3, 2011 has relaxed the norms for buyback of shares and has provided for two new additional methods for satisfaction of the public float..Methods to increase public float.The market regulator has identified two additional methods through which listed companies can sell shares without undertaking a public issue. These routes will be available to listed companies for them to comply with regard to minimum public shareholding requirements. By 2013, all listed companies (except PSUs) are required to ensure minimum public shareholding of 25 percent..Under clause 40 A of the listing agreement, SEBI has prescribed three methods to comply with this requirement. However, these methods have their own limitations and issues. The two new methods announced by SEBI are the Institutional Placement Programme (IPP) and the offer for sale through stock exchanges. These two methods are likely to help ease the process of increasing public shareholding in Indian companies..The IPP method can be used either for fresh issue of capital or dilution by the promoters through an offer for sale. Using this method, public shareholding can be increased by 10 percent or such lesser percentage as is required to comply with the minimum public shareholding requirement of 25 percent..Some of the key features of IPP method are set out below:.There would be simultaneous filing of red herring prospectus / prospectus with SEBI, Registrar of Companies and Stock Exchanges.Offer would be made only to Qualified Institutional Buyers (QIBs).There would be a reservation of minimum 25 percent to mutual funds and insurance companies.Issuer shall announce an indicative floor price or price band atleast one day prior to the opening of the offer.There shall be atleast 10 allottees in every IPP issuance.No single investor shall receive allotment for more than 25 percent of the offer size.The allotment of shares may be made on price priority, proportionate or on pre- specified criteria which has to be disclosed in advance in the prospectus and cannot be changed subsequently..In the second method, the stock exchange would offer a separate window for the purpose of sale through stock exchanges. This is a form of an auction to bidders..Some of the key features of offer for sale through stock exchanges are:.The duration of this window would co-exist with the normal trading hours.The offer shall be for atleast 1 percent of the paid-up capital of the company, subject to a minimum of Rs. 25 crore.Only the promoter/promoter group of companies which are active /eligible for trading would be permitted to offer their shares for sale.Every bid/buy order would be required to be backed by 100 percent upfront cash margin. The settlement shall be through exchange clearing mechanism..According to SEBI, besides using this method for compliance with minimum shareholding requirements, this method can be used by promoters of top 100 companies (based on average market capitalization) for sale of their stake..According to media reports, this move will help fund-raising by the Indian government, which has so far been unable to meet its target of Rs. 40,000 crore from share sales in state-run firms this fiscal year and to keep a grip on the slipping fiscal deficit..SEBI Chief UK Sinha told reporters that “The main rationale is in the larger interest of the market that there has to be a minimum public shareholding and the companies which are not in compliance with that have been given a timeline, which ends in 2013. The current method allows companies to go for a follow-on public offering and past data suggest that in all these cases prices have gone down. If we don’t allow any other avenue for corporates to meet Sebi’s own requirement, then the interest of the small retail investor will be jeopardized”, reports ET..BuyBack of Shares .SEBI in order to align regulatory requirements with the principle of equitable treatment to all shareholders as well as to enhance efficiency of the buyback process has made amendments to BuyBack Regulations..For acceptance of shares in buyback through tender offer, the company shall announce ratio of buyback as is done in the case of rights issues and fix a record date for determination of entitlements as per shareholding on record date..While the shareholders are free to tender over and above their entitlement, acceptance of shares shall first be based on entitlement of each shareholder and if any shares are still left to be bought back, acceptance of additional shares tendered over and above the entitlement shall be in proportion to the excess shares tendered by the shareholder..SEBI has also revised the timelines for various activities involved in the buyback process which shall result in substantial reduction of time taken for completion of buyback..The relevant notifications in this regard are awaited.