SEBI board approves modifications to disclosure norms

By Our Special Correspondent

MUMBAI, JUNE 14. The board of Securities and Exchange Board of India today approved modifications to SEBI (Disclosure and Investor Protection) Guidelines, 2000. Announcing this here today SEBI chairman, Mr. D. R. Mehta, said initial public offerings (IPOs) of issue size up to five times the pre-issue net worth would be allowed only if the company had a track record of profitability and net worth as specified in the guidelines.

On the other entry norms Mr. Mehta said companies not having track record as specified in the guidelines would be eligible to make IPOs only through the book building route. In such a case, 60 per cent of the issue size would be allocated to `qualified institutional buyers' (QIBs). If this does not happen, the issue would fail. IPOs of issue size more than five times the pre-issue net worth and public issues by listed companies of more than five times the pre-issue net worth would be allowed only through the book building route. In such a case 60 per cent of the issue size would be allocated to QIBs. If the institutional subscription is not received, the issue would fail.

The lock-in provisions applicable to initial public offerings have been rationalised to provide that the minimum promoters contribution of 20 per cent will be locked-in for three years as at present and the balance of the entire pre-IPO capital held by the promoters or others (except shares allotted to registered venture capital funds which will be subject to lock-in as per the Venture Capital Guidelines) will be locked-in for one year from the date of allotment. The amount against promoters contribution brought in the form of cash either before or along with the issue shall be kept in a separate escrow account and released to the company with public issue proceeds. Notwithstanding the above, where the contribution has been brought prior to the issue and already deployed, a cash flow statement shall be given in the offer document disclosing the use of funds received against promoters' contribution.

It is also decided to lock-in the shares issued on preferential basis by a listed company to any person for one year from the date of its allotment except such preferential issues which involved share swap for acquisition. This will be over and above the 20 per cent of total capital of the company held by the promoter being subject to lock-in as stated in the guidelines. It has also been decided to strengthen the disclosure requirements in the notice convening the general meeting for the purpose of preferential allotment and also extend the present disclosure requirement of utilisation of public issue proceeds to preferential offers also.

The board has approved the introduction of carry forward system in the rolling settlement as proposed by the reconvened Prof. J. R. Varma committee. There will be both daily and weekly carry forward system with maturities of 1, 2, 3, 4 and 5 days. However, Mr. Mehta, did not give details of the timeframe to implement this. The SEBI board which met here today also approved the introduction of continuous net settlement (CNS) by exchanges.

The board also approved the following changes in the existing carry forward system under the weekly account period settlement: (1) increase in the carry forward limit per broker from the existing limit of Rs. 20 crores to Rs. 40 crores. The margin up to the present limit of Rs. 20 crores will remain at the present level of 15 per cent and the incremental position will attract a minimum margin of 20 per cent. Further there will be scrip-wise broker-wise position limit, which presently will be Rs. 5 crores.

(2) To continue the margin on carry forward trades on gross basis. The introduction of margin on gross basis in the cash market as well as the incorporation of client code will be considered separately by the Risk Management Group constituted by the SEBI.

(3) To discontinue the present limit of 75 days for carrying forward trades and

(4) To introduce specific eligibility criteria for scrips in the carry forward system both in the account period and rolling settlement as well as for scrips in the CNS.

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Section  : Business
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