The Hindu Business Line : Money-raising made easy

Qualified domestic institutional investors are not new to the capital market but the latest guidelines from the Securities and Exchange Board of India provide for a more liberal framework to access their funds. SEBI has permitted listed companies to issue convertible instruments with extended currency of 60 months as opposed to the 18 months under the prevailing guidelines on private placements on a preferential basis. An extended period over which the conversion option can be exercised is of particular interest to institutional investors, which prefer to hedge their bets on exposure to specific companies. Such flexibility has always been available to companies raising money abroad. In the event, a competing domestic market has been opened up for raising resources.

The latest guidelines also allow companies an extended period of 12 months from the time shareholders authorise the company to raise capital. The earlier stipulation that private placements be completed within 15 days of shareholder authorisation may have been in order where allottees for such preferential issue were identified, as, for instance, where shares are to be allotted to promoters. But such a stipulation is too restrictive if the company is to shop around for potential institutional investors. The flexibility of completing the issue in more than one tranche should also be welcomed by corporates. The disclosure requirements too have been considerably simplified. Companies need file only a placement document that conveys essential information in contrast to the detailed one stipulated earlier, where SEBI's instructions on what should go in itself runs into over 40 pages. Institutional investors are capable of protecting their interests and so do not need the regulator's assistance to make informed investment decisions.

But welcome as these changes are, it is a moot point if one will see a rush of companies to this new window. For those eyeing assets overseas, this may not be the preferred route as the monies so raised would be in rupees. Though the foreign exchange regime has seen considerable liberalisation, the transaction injects a needless element of exchange rate risk. But SEBI's latest initiative could well result in the marginalisation of retail investors. Companies with good corporate governance structures do not see any great advantage in the presence of a large block of benign retail investors interested in nothing more than their annual dividend cheques and bonus shares at regular intervals. In the event, the easier procedural formalities associated with accessing institutional investors in the domestic market might prove an advantage for such companies. That should also mean fewer IPO scams of the kind witnessed recently.

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