Sebi notifies IPP norms to help promoters dilute stake

In a move that could expedite government's disinvestment process, the market regulator Sebi today notified the IPP guidelines that will allow companies to reduce promoter shareholding through private placement.

As per the new  norms for Institutional Placement Programme (IPP) of shares, even the companies would be allowed to issue fresh equity to institutional investors to dilute stake of promoters.

The notification, according to official sources, will help the government, which is hardpressed for funds, to expedite disinvestment process. A company, according to the Sebi (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2012, will be allowed to dilute only 10 per cent of its equity through sale of promoter stake or issuance of fresh equity.

"The provisions... shall apply to issuance of fresh shares and or offer for sale of shares in a listed issuer for the purpose of achieving minimum public shareholding...," Sebi said in its notification.

The issue, according to the norms, would remain open for a maximum of 2 days and the aggregate demand schedule would have to be displayed by the stock exchanges without disclosing the price.

For coming out with an IPP, the guidelines said, the issuer would be required to obtain an in-principle approval from the stock exchanges and file the offer document with BSE, NSE and Sebi.

The government is facing the tough task of meeting the disinvestment target of Rs 40,000 crore in the current fiscal and is hopeful that the opening up of new avenues would help it fast track stake sale in PSUs.

"The IPP norms are broadly similar to QIP. But the 10 per cent limit for stake sale can create roadblocks for companies where promoters hold above 85 per cent stake. There auction will become compulsory after IPP," SMC Global Securities strategist and head of research Jagannadham Thunuguntla said.

While any company can come out with a Qualified Institutional Placement (QIP), IPP will be permitted only for reducing promoter shareholding. As per government norms, at least 10 per cent of the shareholding in all listed state-owned companies should be with the public by June 2013, though in the case of private sector companies it has to be 25 per cent.

The Sebi norms further stipulate that a minimum 25 per cent of the shares allocated by way of IPP should be earmarked for Mutual Funds and insurance companies. It, however, bars the promoter group companies from participating in the IPP process.

"The eligible seller shall announce a floor price or price band atleast one day prior to the opening of the IPP," Sebi said, adding that the allotment of the shares could be done either proportionate to the total bids in IPP or on the basis of higher quotation.
Besides, Sebi has also given freedom to promoters to opt for any other basis of allotment but they will have to mentioned in the offer document.

"The bids made by the applicants in IPP shall not be revised downwards or withdrawn," Sebi said, adding that no single entity can get more than 25 per cent stake through IPP.

The promoters, the notification said, would not be allowed to sell or purchase company's equity within and after 12 weeks of the completion of the IPP process