Market regulator, the Securities and Exchange Board of India (SEBI) Chairman, C.B. Bhave has given his approval to the concept of anchor investor (AI).
This concept allows an investor to subscribe, in an initial public offer (IPO), up to 30 per cent of the quota for institutional investors.
The underlying concept of AI is that the company can bring in a strategic investor who would be able to subscribe to 30 per cent of the quota reserved for the qualified institutional buyer (QIB), that is 18 per cent of the total issue.
However, the AI cannot offload the shares allotted before 30 days have passed.
The idea behind the concept is that by leading from the front AI would quote the price it is willing to pay for the company's shares. Then the other investors subscribing to the initial public offer (IPO) will be in a better position to quote their price.
Hence, a reputable company will be able to command a far higher premium than a company having low corporate governance standards. With this change in rule, equity and venture capital investors will be able to take the advantage of the IPO to take a position in the company rather than taking a higher risk and investing in the company in the pre-IPO period.
Also, Bhave said that entry load for investments in mutual funds would be removed.
SEBI Board Meeting
The Board met today and took the following decisions:
(i) Listing of IPO on stock exchange with nationwide trading terminals
An unlisted company making an IPO shall list the securities on at least one stock exchange having nationwide trading terminals. This would provide a liquid trading platform to investors in securities of the company.
(ii) ‘Anchor Investor’ in public issues
An issuer making a public issue of shares through book building may allocate on a discretionary basis up to 30% of the QIB portion of the issue to anchor investors (AIs), who is a QIB. The minimum size of application by AIs would be Rs. 10 crore. They would bring in a margin of 25% on application and the balance 75% within 2 days of the date of closure of the public issue. There will be a lock-in of 30 days on the shares allotted to these investors from the date of allotment. No person related to the promoter/promoter group/BRLMs can apply as anchor investor. This would bring more certainty to transactions..
(iii) Holding period for shares offered for sale
Under the current guidelines, a shareholder can make an offer for sale of the equity shares if he has held them for a period of at least one year. Board decided that in case equity shares which are received on conversion of fully paid compulsorily convertible securities, including depository receipts are being offered for sale, the holding period of such convertible securities as well as that of resultant equity shares together would be taken into account for the purpose of eligibility.
(iv) Issue of shares with superior voting rights
No listed company can issue shares with superior voting rights. This will avoid the possible misuse by the persons in control to the detriment of public shareholders.
(v) Rationalisation of disclosure norms for rights issues
Since rights issues are made to existing shareholders, who are in possession of basic information about the company and have been receiving reports regarding major developments in the company on a continuous basis, it has been decided to rationalize disclosures in rights issue offer document by doing away with or modifying existing disclosure requirements. Disclosures that have been done away with include summary of the industry and business of the issuer company, promise vs. performance with respect to earlier/ previous issues, ‘Management discussion and analysis’. The disclosures relating to financial statements, litigations, risk factors, etc. have been simplified. The revised set of disclosures would make the process of rights issues faster for companies and also reduce the overall cost of such issuances.
(vi) Transparency in payment of commission to Mutual Fund distributors
There shall be no entry load for the schemes, existing or new, of a Mutual Fund. The upfront commission to distributors shall be paid by the investor to the distributor directly. The distributors shall disclose the commission, trail or otherwise, received by them for different schemes/ mutual funds which they are distributing or advising the investors.
(vi) Rationalisation of fee
Our special report on this variable load structure The Burden Of Commission