Sebi chief UK Sinha puts Dalal Street in order with new reforms

Companies will now be permitted to meet the minimum 25-per cent public shareholding norm through allocation of bonus or rights shares, Securities and Exchange Board of India a (Sebi) chairman U.K. Sinha said on Thursday.

The regulator also announced a slew of measures, including those relating to expense ratios and taxation, to boost mutual funds (MFs), which have been badly hit by sluggish markets and changes in regulations.

Current Sebi rules stipulate that all listed firms must have a minimum 25-per cent public shareholding by June 2013. Companies will have the option to do so by auctioning shares to institutional investors or via follow-on share offerings.

The shareholding rule has forced controlling stakeholders of many companies like Wipro and real estate major DLF to pare down their shares from more than 75 per cent. But many companies have so far failed to meet the requirement due to the slowing economy and a sharp fall in share prices as there are very few buyers.



"This is a timely change," said Gesu Kaushal, executive director, Kotak Investment Banking, arm of Kotak Mahindra Bank. "The more routes available for this, the higher will be the chances of companies meeting the deadline."

In a major decision that could make it costlier for investors to put money in MFs, Sebi decided that any service tax would be charged to the ultimate investor, not the asset management company (AMC) as is the practice.

Sinha also said that a committee is being set up to frame a national mutual fund policy. Sebi decided that a minimum lot of shares would be assured to retail investors in initial public offerings (IPOs). The regulator would also frame rules for investment advisers, Sinha said.

Among other decisions, nonretail investors cannot withdraw or cut their price or offer size in IPOs but can enhance the same as is the rule for retail investors. For companies coming out with IPOs, they would now have to disclose the price band at least five working days before the opening of the bidding as against the current norm for two days.

Among other measures to reform the primary capital market and increase retail investors' participation, Sinha said firms would not be allowed to raise over 25 per cent of the total IPO size for "general corporate purposes".

The move will help bring in transparency and check possible misuse of funds raised by firms through IPOs, investment bankers said, given the vague definition of the terms. Currently, there is no cap on funds raised for "general corporate purposes". The asset management sector has been hit by volatile markets and abolishing of the entry fee, which fund managers used to pass on to distributors to compensate them for selling their funds.