Sebi's move on Fast Track rights, FPOs to help government in disinvestment of state-owned companies
MUMBAI: Capital market regulator Sebi is planning to allow more listed companies to raise funds through 'fast track' follow-on public offers (FPOs) and rights issues, provided issuers fulfil certain conditions. The proposed move could also make it easier for the government to divest stake in some of the state-owned companies.
Companies having a free-float market capitalisation above Rs 250 crore will be able take this route, according to a regulatory official. This will make more than 300 listed companies eligible for the fast track fundraising option. Apart from meeting existing criteria, companies will also have to fulfil additional conditions - like, promoters will have to compulsorily subscribe to rights entitlement, the stock should not have been suspended from trading in the past three years due to regulatory violations, no conflict of interest should prevail between lead manager and issuer and promoters, and the company should not have settled any violation of securities law through consent mechanism.
The regulator is keen to further reduce the time for processing offer documents for companies with good track record. At present, compliant listed companies satisfying certain specific conditions and having a market capitalisation of Rs 3,000 crore are allowed to access the primary market in a time effective manner. Such companies can proceed with FPOs and rights issue by filing a copy of prospectus with stock exchanges and Sebi. They are not required to file draft offer document for Sebi commen .. "Typically, for a company wishing to raise money through an FPO or rights issue (with Sebi review), the timeline is about 5-7 months, which is very long in the current environment," said Sudhir Bassi, executive director-capital markets of the law firm Khaitan & Co. "In order to make FPO and rights issue more popular modes of raising funds by corporates, it would be useful if Sebi relaxes the eligibility requirements for fast track issuers."
The new rule on fast track issuances is expected to cover all PSUs, irrespective of their market capitalisation - a step that could facilitate the government's divestment programme. On the proposal on making it incumbent on promoters to subscribe to their rights entitlement, Chakarvarty said, "This is in line with international investing practices."
In 2012, the regulator had reduced the threshold of free-float market capitalisation for issuers accessing the market through fast-track FPOs and rights issues to Rs 3,000 crore from Rs 5,000 crore. Sebi had introduced the concept of fast track issues in 2007. The regulator is not in favour of making the fast track route available to all companies as the process involves restricted due diligence.
But some experts feel all publicly traded companies should be able to avail this facility. "All listed companies should be allowed to use the fast track route. However, to be on the conservative side, the current threshold of market cap should definitely be lowered," said Prithvi Haldea of Prime Database. "If a company is already listed and trading is taking place on a daily basis, then there is enough information available in the public domain... why, then, should an FPO or rights issue require a detailed offer document and a Sebi approval?"