SEBI eases rules for share auctions

MUMBAI Fri Jan 18, 2013 9:15pm IST

Commuters walk past the Bombay Stock Exchange building in Mumbai February 28, 2011. REUTERS/Danish Siddiqui/Files

Commuters walk past the Bombay Stock Exchange building in Mumbai February 28, 2011.

Credit: Reuters/Danish Siddiqui/Files

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MUMBAI (Reuters) - India's regulations for share auctions have been eased to help firms meet rules that at least 25 percent of their shares be publicly traded by end-June.

India is trying to improve the public ownership of shares and is taking steps to make it easier for firms to sell blocks of shares.

Measures including eliminating the requirement for upfront payments by bidders taking part in auctions, were announced after a Securities and Exchange Board of India (SEBI) board meeting on Friday, and will also allow certain investors to make changes to their bids and track average bidding prices.

Analysts said the changes to rules governing offers for sale (OFS) - a share auction system introduced in 2012 - will make it easier for controlling shareholders to cut their stakes.

Investment bankers estimate that roughly $2 billion in shares will need to be sold to meet the public shareholding rule announced two years ago.

The changes should also help the government, which is looking to raise 300 billion rupees by selling stakes in state companies by the end of the fiscal year in March, to meet its deficit-cutting targets.

"As we get closer to the public shareholding deadline, any improvement in the framework is going to encourage companies to meet the requirement. It will also help the divestment drive," said Gesu Kaushal, executive director at Kotak Investment Banking.

"There will also be more openness on the part of the foreign investors to come in with these flexibilities."

The new rule replaces regulations that had required investors to deposit either 25 percent or 100 percent of their order value up-front with a custodian.

Investors will now be allowed to bid in OFS auctions without making a deposit but will only be allowed to make upward changes to their bids. Investors who deposit 100 percent of their order value up-front can now modify or cancel their orders, SEBI said.

Issuers and bankers had been lobbying SEBI to remove the deposit requirement, and to be allowed to make changes to their bids, arguing it would increase participation for large share sales from domestic as well as overseas portfolio investors.

SEBI also said bidders putting a deposit for 100 percent of their orders upfront would be able to track cumulative orders and bids, which would allow them flexibility to change their orders.

Previously, exchanges would disclose "indicative prices", or the average prices of all the bids received, only towards the close of the auction.

(Additional reporting by Abhishek Vishnoi; Editing by Tony Munroe and Elaine Hardcastle)

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