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SEBI unveils two new means to kick start stake sales by promoters

04 Jan 2012 Evaluate

The Securities and Exchange Board of India (SEBI) in its board meeting on January 3 announced two new means through which listed local firms could sell shares without floating a public issue. The move is likely to prove helpful in expediting the government's disinvestment programme and also fast tracking the sale of promoters' equity in listed companies to meet minimum public shareholding norms. The new mechanisms, which are comparatively speedier, less expensive and secure methods of raising money for promoters, are expected to simplify the process of increasing public shareholding for domestic firms.

One of the mechanism created by SEBI for share sales is the institutional placement programme (IPP), which will allow promoters to sell up to 10 percent of their capital till they comply with the minimum public shareholding requirement of 25%. The IPP, which can be used for both fresh issuance of capital and dilution of stakes by the promoters, is a route through which shares can be offered only to qualified institutional buyers (QIBs) while at least 25% has to be reserved for mutual funds and insurance firms.

The other mechanism introduced by the market regulator is offer for sale through stock exchanges which allows promoters to sell shares on the stock exchanges but from a separate window for auction that would be open during normal trading hours. Under this mechanism, the promoters will only be allowed to offer shares for sale while the bidders will be have to pay 100% margin in cash upfront against every buy order.

Amid the recent volatile stock market situation, the finance ministry had to abstain from divesting stakes in many state-owned companies like Oil and Natural Gas Corporation, Steel Authority of India and Indian Oil Corporation. But with the new norms in place, government can now look to reduce its fiscal deficit via stake sale of public sector units.

Moreover, in its bid to substantially reduce the time taken for completion of share buyback, the SEBI has revised the timeline for various activities involved in the share buyback process. Shareholders will be allowed to tender over-and-above their entitlement but acceptance of shares shall first be based on the entitlement of each shareholder. 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.

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