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July
11, 2007
GOVERNMENT INFRASTRUCTURE COMPANIES NOW ENJOY RELAXED
IPO NORMS
Securities
Exchange Board of India (“SEBI”)
has made certain amendments in the SEBI (Disclosure and Investor
Protection) Guidelines, 2000 (“DIP Guidelines”), vide Circular
no. SEBI/CFD/DIL/DIP/27/2007/10/7 issued by SEBI dated July 10,
2007 (“Circular”),
in respect to the government companies / corporations, statutory
authorities / corporations or any special purpose vehicle set by
them, engaged in the infrastructure sector (“Government
Companies”). The amendment has also defined the term ‘infrastructure
sector’. Infrastructure sector would, inter
alia, include transportation, agriculture, water management,
telecommunication, industrial, commercial and social development
and maintenance, power, petroleum and natural gas, and housing.
The
amendments are with respect to determining face value of shares at
the time of Initial Public Offering (“IPO),
securities eligible for promoters’ contribution, minimum holding
for offer for sale and net offer to public.
Determining
the face value of the shares:
SEBI
has relaxed the norms of determining the face value of the shares
in an IPO made by a Government Companies. Under the DIP
Guidelines, the determination of the face value of the share
depends upon the issue price of the share, In case of IPO by an
unlisted company, the issuer company shall have the discretion to
fix the face value at Rs 10 per share or any price less than that
subject to the condition that the face value shall in no case be
less than Rs 1 per share. In case the issue price is less than Rs
500, the face value shall be Rs. 10 per share while in case where
issue price is more than Rs. 500, the face value can be between
Rs. 1 and Rs.10. However, after the said amendment the Government
Companies can now freely determine the face value of the shares in
an IPO irrespective of the issue price.
Securities
Eligible for Promoters Contribution:
As
per the DIP Guidelines in case of a public issue by unlisted
companies, the securities acquired by the promoter during the
preceding one year, at a price lower than the price at which the
securities are being offer to public are not eligible for the
purpose of calculating promoters’ contribution.
The amendment relaxes the norms for the computation of the
promoters’ contribution in case of Government Companies.
By virtue of the said Circular there has been an amendment
with respect to the securities ineligible for computation of
promoter’s contribution. In the event that promoters of an
unlisted Government Companies, have acquired securities during the
preceding one year of the IPO at a price lower than that which is
offered to the public, than such securities acquired by the
promoters shall also be considered as a part of the promoters
contribution.
Offer
for Sale
According
to the DIP Guidelines for offering securities to the public
through offer for sale, there is requirement of minimum holding
period of at least one year of such securities at the time of
filling the draft offer document with SEBI. SEBI
has relaxed the norms of minimum holding requirement for the
Government Companies. The minimum holding requirement of the pre
issue capital of one year shall not apply to an offer for sale of
equity shares
of an unlisted Government
Companies.
Net
Offer to the Public:
According
to DIP Guidelines, in case of public issues, the net offer to
public has to be at least 10% or 25% as the case may be, of the
post capital for an unlisted company and of the issue size for a
listed company. SEBI has relaxed the said norm of minimum net
offer to public in case of a public issue by Government Companies.
The net offer to public of a minimum of 10% or 25% as the case may
be of the post issue capital is inapplicable to the Government
Companies.
Implications:
The relaxed
norms will give a fillip to the government
companies / corporations, statutory
authorities / corporations or any special purpose vehicle set by
them, engaged in the infrastructure sector.
This is will help such companies to be eligible for the public
issue requirements under the DIP Guidelines and make the best of
the growing India economy by raising funds in the Indian primary
market through IPOs.
Sources: Circular
no.SEBI/CFD/DIL/DIP/27/2007/10/7 issued by SEBI dated July 10,
2007
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