Investment limit for retail investors increased to 2 lakh, Rights issue framework for IDRs, Norms for public issues by insurance companies etc.

SEBI vide PR No.231/2010 dated October 25, 2010 has published the decisions taken by the SEBI Board in its meeting held on the same date. The highlights of the press release are as follows: -

Norms for public issues by insurance companies

SEBI has stated that SEBI (ICDR) Regulations, 2009 would be applicable to public issues by insurance companies. SEBI and IRDA have been working together for finalizing a framework for life insurance companies to raise funds from the market and list in the capital markets. The new framework stipulates more disclosures wherein insurance companies need to put in the risk factors specific to insurance industry in the offer document. Other changes include amendments to the ICDR regulations which allow monitoring agencies like one for banks in India where RBI is monitors banks, IRDA will be allowed to monitor life insurance companies who come into the capital markets.

Preferential issue of equity shares or convertible securities or warrants to promoters and promoter group

SEBI stated that in case of preferential issues, where any promoter or any promoter group entity has previously subscribed to the warrants of the company but failed to exercise the warrants, the promoters and promoter group would be ineligible for issue of equity shares or convertible securities or warrants for a period of one year from the date of expiry of the currency /cancellation of the such warrants. In case of any member of the promoters/ promoter group has sold shares in the previous six months, then the promoters/ promoter group would be ineligible for allotment on preferential basis.

The SEBI (ICDR) Regulations, 2009 allows preferential allotment of warrants subject fulfillment of certain specified conditions. These warrants give promoters an option to convert warrants into shares at a pre-determined price. The price of such conversion is decided based on the average price of the last six months or last two weeks, whichever is higher. Promoters have 18 months to convert the warrants into shares at that price. They generally convert the warrants in a rising market and book profits but tend to let them lapse when markets fall. Thus the allotment of warrants allowed promoters to enrich themselves in booming markets and getaway in crashing markets. SEBI, taking note of this issue, had earlier proposed to increase the upfront margin to be paid by allottees of equity warrants to 25% from the earlier 10%.

Rights issue framework for IDRs

SEBI stated that it will soon notify the framework for rights issue of IDRs. This would facilitate simultaneous rights offering by the foreign issuers (who have listed their Indian Depository Receipts (IDRs) in Indian Stock Exchanges) in their home jurisdiction and in India. Even though the Companies (Issue of Indian Depository Receipts) Rules, 2004 were issued in 2004, only one company has so far issued IDRs in India for raising capital.
 
Investment limit for retail investors increased to 2 lakh

SEBI has increased the maximum application size for retail individual investors to Rs.2 lakh across all issues.

Regulation 2 (1) (ze) of SEBI (ICDR) Regulations, 2009 currently defines "retail individual investor" to mean an investor who applies or bids for specified securities for a value of not more than one lakh rupees. Earlier in August 2009 SEBI had released a discussing paper which proposed to raise the investment limit for retail investors from the current Rs 1 lakh to Rs 2 lakh. SEBI felt that the retail individual investors who have the capacity and appetite to apply for securities worth above one lakh rupees were constrained from doing so because of the one lakh limit and they do not make application under the non institutional investor category because the allocation there is limited to 15% as against 35% for retail individual investor category. Another reason which prompted SEBI for such a move is the inconvenience faced by merchant bankers in big offerings to get enough number of retail investors because of the limit of one lakh rupees. It is also felt that the huge public offerings of PSUs which are in pipeline have prompted the Government for such a move to ensure that the offerings are fully subscribed in the retail segment.

Requirement of promoters' contribution not be applicable to FPOs

SEBI has stated that the requirement of promoters' contribution would not be applicable to FPOs where equity shares of the issuer are not infrequently traded in a recognised stock exchange for three years and the issuer has a track record of dividend payment for three years.

News reports appearing after filing of draft offer document to be consistent with disclosures in the offer document

SEBI has stated that the merchant bankers may submit a compliance certificate as to whether the contents of the news reports that appear after filing of draft offer document are supported by disclosures in the offer document or not. This would apply in respect of news reports appearing in newspapers stipulated in ICDR for issue advertisements, major business magazines and also in the print and electronic media controlled by any media group where the media group has a private treaty/shareholders' agreement with the issuer company/promoters of the issuer company. Earlier in August, 2010 SEBI had asked media companies to disclose the details of the stake held by such media companies in various companies.

A copy of the press release is available here.