COMMENTARY
INTERVIEWS
SPECIALS
CHAT
ARCHIVES

SEBI okays easier life for corporates: several norms eased

In a move to make life easier for corporates, the Securities and Exchange Board of India today liberalised norms for the initial public offerings, granted flexibility on par value, approved guidelines for the Employees Stock Options Plan or ESOP and defined rules for credit-rating agencies.

At a marathon board meeting in New Delhi, SEBI arrived at decisions on 22 important issues, chairman D R Mehta said.

The decisions included removing conflict between SEBI and the Reserve Bank of India on the criteria for merchant bankers who want to become primary brokers.

A committee on corporate governance will be constituted under the chairmanship of Kumaramangalam Birla, chairman of the A V Birla Group.

Though the report of the L C Gupta committee was accepted, a group has been set up to define actual margins in derivatives trading.

Mutual funds will also be allowed to trade in derivatives when they are introduced.

The board has given freedom to corporates to fix a ceiling for prices for buyback of shares with the approval of shareholders. But the companies will be free to buy back shares below the ceiling fixed.

Scrapping the provision of fixed par value at Rs10 and Rs100, SEBI has permitted companies to fix any value they like for initial public offerings. This option was already available to those issues that are offered above Rs10 by way of premia. The board has now given the freedom to offerings below Rs10 a share as well.

But this freedom comes with a rider. Only those companies that trade in dematerialised form will be allowed to fix par value below Rs10. Also, the company that wants to fix par value below Rs10 has to first split or consolidate existing shares.

The current disclosure norms applicable for premium issues will apply to all IPOs, including those below Rs10.

"This measure of liberalisation will benefit both investors and companies, while harmonising the existing separate disclosure and entry norms for par and premium issues," Mehta said.

Considering the recommendations of Prof J R Varma on ESOPs and Employees' Stock Purchase Plans, the board decided that the companies can issue stock options to their permanent employees at any rate of discount.

But the scheme will not apply to promoters and large shareholders owning more than 10 per cent of the total equity.

The board has fixed a one-year lock-in period for ESPPs given at a discount. But for other ESPPs which are issued to employees at the same price as in the public issue, the shares shall have no lock-in period.

This will replace the adversarial employer-employee relations with a harmonious one, improve productivity and increase the avenues of compensation to employees, Mehta said.

For promoters, the board is working on a separate scheme of sweat equity for which a committee under Prof Varma has been set up.

Liberalising the norms for IPOs, SEBI replaced the provision of the dividend payment track record with the ability to pay dividend.

The existing norms permit an unlisted company to come with an IPO only if it has a dividend payment track record for three out of five preceding years.

The board made it mandatory for companies intending to come out with an IPO, based on ability to pay dividends, to have a minimum pre-issue net worth of not less than Rs10 million in three out of the preceding five years or preceding two years.

In case of infrastructure companies, the board said the condition of minimum 5 per cent of the project cost can be met by the appraising agencies, jointly or separately, irrespective of whether they evaluate the project.

This will boost the funding of infrastructure projects and the immediate beneficiary will be the NOIDA toll bridge, Mehta said.

For the first time, the board has come out with regulations for credit-rating agencies or CRAs.

It said that promoters of CRAs can be public financial institutions, scheduled commercial banks, foreign banks operating in the country, and experienced and recognised foreign CRAs.

Any other company or corporate body having continuous net worth of minimum Rs1 billion in the previous five years can also be a promoter, he added.

The other guidelines approved include requirement of minimum net worth of Rs50 million for CRAs, a maximum of 5 per cent holding by financial institutions in CRAs, disclosure of unaccepted ratings to investors, and mandatory ratings from two CRAs for all public and rights issues of debt securities greater than or equal to Rs1 billion.

UNI

Business news