Listed companies will not have to wait longer to sell shares through follow-on public offers (FPOs) as the Securities and Exchange Board of India plans to bring down the period of issuing an observation letter to 45 days.

“Currently, the observation giving process of an FPO proposal takes 3-6 months, which is too high. Our effort would be to fast-track the process,” a senior SEBI official told BusinessLine , adding that initially this would apply for the top 200 companies, and should be in place in the next six months. An FPO takes place when a company taps the market anytime after its initial public offering.

Pranav Haldea, Managing Director of Prime Database (which tracks primary issuance of equity and debt), said since listed companies already make a lot of disclosures, there is no need to give all the information when approaching the market again. This can also reduce the time period for issuance of observation letter. “The Government has indicated using more FPOs than ‘offer-for-sale’ for disinvesting its stake in Central public sector enterprises this year. Fast-tracking will help in this regard,” he added.

Consultation paper

The market regulator also plans to issue a consultation paper, inviting comments from the public, after which the new guidelines will be issued. Once implemented, this will be the second quick process for selling shares, apart from OFS, through stock exchanges, better known as the auction method.

There are some differences between the FPO and OFS mechanisms. The former requires a price band (floor or minimum cap or maximum price) for bidding, and the issue needs to remain open for bidding and application through many windows.

The OFS mechanism prescribes just the floor price, and bidding takes place only during trading hours on a particular day, with only one window for placing the bids. The key difference is that OFS requires less documentation than FPOs. Also, the completion process, including allotment of shares in FPOs, takes longer.

A traditional FPO reserves a minimum of 35 per cent of shares for retail investors, while this June, SEBI prescribed a minimum of 10 per cent for retail investors in OFS.

Haldea said, even earlier, retail participation in OFS was not significant and the situation is unlikely to change now with the ease of investing in FPOs.

On a technical note, SEBI does not approve or reject a public offer. It simply ensures that all the information in the offer document follows regulatory norms. Accordingly, it issues an observation letter that is valid for 12 months, which means a company has to open its issue within 12 months from the date of issuance of the letter. If it fails to do so, it needs to approach the regulator again.

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