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Thursday, July 12, 2007

Sebi relaxes IPO norms for core PSUs

The government will find it easier to raise money for a range of infrastructure projects. Capital market regulator Sebi has relaxed some of the initial public offering (IPO) norms for government-owned companies, statutory authorities or corporations and even special purpose vehicles (SPVs) engaged in infrastructure.

In a communique issued to registered merchant bankers and stock exchanges on Tuesday, Sebi has said that the new changes shall be applicable to all draft offer documents on which observations are issued by the regulator on or after the date of the circular. NHPC, Power Grid Corporation and Oil India are among the state-owned organisations considering IPO plans. The key changes made by Sebi are :

Lower Face value

Public sector infrastructure entities will have the flexibility to issue IPOs with face value of share less than Rs 10. At present this can be done only by companies having fixed the IPO issue price above Rs 500. So, a government company where shares were initially issued at less than Rs 10, will not have to restructure its capital before going for an IPO where issue price is less than Rs 500.

Promoters’ Contribution

Currently, promoters have to maintain at least 20% in the post-IPO share capital of a company. If shares have been issued to the promoter at less than the issue price within one year prior to the issue, then such shares are not counted in calculating the 20% holding. These shares can be factored in only if the promoter chips in the balance before the IPO. This rule will not hold for government owned infrastructure companies.

No Lock-in

Today, if promoters are issued shares in an unlisted company, they cannot sell the shares to the public before one year. However, an SPV formed by the government or any of its entities can offer the shares for sale along with the IPO of the SPV in less than one year. An easy exit may encourage institutions and financial investors to join the government as co-promoters in infrastructure ventures.

Less Public Holding

The public shareholding in government controlled infrastructure companies can now go below even 10%. Under the present rules, the public shareholding in most companies (except banking and infrastructure) has to be a minimum 25%. It can be even 10% for companies which have issued 60% shares to qualified institutional buyers such as banks, mutual funds, FIIs etc.

The relaxations will not only enable many public sector infrastructure entities to tap the market with minimum dilution, but will also give the government more elbowroom to structure SPVs which can quickly mop up funds. In making the changes, Sebi has amended the Sebi (Disclosure & Investor Protection ) Guidelines 2000. The regulator has given a detailed list of sectors that qualify as 'infrastructure' in its website, reports The Economic Times.

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