Reacting to the announcements made by the Sebi board after its meeting on Saturday evening, corporate tax lawyers HP Ranina, Prithvi Haldea and former executive director at Sebi Sandeep Parekh explain to CNBC-TV18 the various aspects of the announcements and the probable impact on foreign investment and the markets.
Reacting to the announcements made by the Sebi board after its meeting on Saturday evening, corporate tax lawyers HP Ranina, Prithvi Haldea and former executive director at Sebi, Sandeep Parekh explain to CNBC-TV18 the various aspects of the announcements and the probable impact on foreign investment and the markets.
Below is an edited transcript of the experts' analyses on CNBC-TV18.
Q: What are your key takeaways from the announcements made after the Sebi board meeting?
Ranina: The announcements were expected to some extent. I am not very enthused because there is not much that will happen that will encourage foreign institutional investors (FIIs). There is that one provision which enables FIIs to reinvest. But this was on expected lines.
Haldea: This was not really a meeting of the Sebi board. At a typical meeting of the Sebi Board, there would be an announcement of a lot of decisions This was an occasion where the finance minister's first visit to Sebi and meeting the Sebi Board after assuming charge. So, it was obvious that there would be not be any announcements of significant decisions.
However, it has become very evident that the Sebi and government are very keen that the public shareholding norms, which have to be met by June 2013, should be complied with.
Sebi has already relaxed a lot of regulations, has also allowed several new routes for promoters to dilute and it is hoped that with the government's reiteration in the next eight-to-nine months, non-compliant companies will attempt issuances of various kinds to comply with these norms.
On the FPO, an attempt has been made towards rationalisation. Sebi is now thinking in terms of allowing IPOs only for companies which have a track record of profitability. If that is being dispensed with for FPOs, it is more in line with the fact that a company is not delisted if it starts to make losses.
An FPO is basically of an existing listed company and therefore it is impractical and inappropriate to prescribe any profitability clause for a listed company. By that logic, you will to have then re-list all loss-making companies or any company which from profit turns to losses.
I think the government has to stop the continuous increase in FII investments in the Indian debt market. The government should encourage domestic investors, financial institutions and mutual funds to take a greater exposure to debt. I think we should not become overtly dependent like the equity market is, on FIIs.
Parekh: The announcements show the nature of political support given to regulatory bodies. I see this as a great effort of political support to allow the regulators to aid in the implementation of those reforms.
Q: Are none of the proposals of any significance?
Ranina: Not at all. But the proposals will smoothen the process and meet the demand of the FIIs. I don't think any of the announcements are going to really spur any further increase in stock prices or lure more FIIs into India.
Q: How much of an impact will the reinvesting of 50 percent of last year's debt into the next year, be?
Ranina: I don't know the exact figures. But it certainly will be a boost to a limited extent. Now what debt the FIIs want to reinvest or whether the FIIs want to take the money out - that is their decision. But they have been given the facility that if they want to reinvest 50 percent of the debt, they can do so. We don’t know what impact it will have on the capital markets. It is just a facilitating provision.
Q: What have you made of the Sebi announcement with respect to complying with the minimum public shareholding norms?
Ranina: This was on the anvil. Minimum public shareholding norms will have to be complied with. They have to make sure that at least 90 percent is with the public, so promoters will have to dilute as fast as they can. Last time they had given some additional time for this. So now they have made the provision and they have to comply with as soon as they can.
Q: What could be the next steps that could be expected on the regulation of the financial markets from Sebi?
Haldea: I don't think any big-ticket reform is required unless you wish to look at a new paradigm. I think the next big expectation is the revival of the equity market with the entry of a few good private sector IPOs and the commencement of divestment regarding which we have been only hearing much, but there has been nothing on the ground.
So, I think the ball is now in the court of the issuers rather than with the Sebi and hopefully, I think there should be some activity in the market in the next six months.
On the secondary market, I think there is definitely a greater need for increased surveillance and investigation so that incidents of manipulation and insider trading are curbed and adequate punitive action is taken to deter potential offenders.
A series of decisions have been taken regarding mutual funds and Sebi is looking at a new initiative called a safety net which is under discussion. I welcome this move because it is aimed at restoring the confidence of very small investors and also bring some sanity in issue pricing.
I hope that on the back of some good decisions that have been taken and are in the pipeline, the markets and the economy continue to do well. Unless that happens, I don't think there will be any issuances.
Q: A clarification in the public shareholding segment states that capital issued outside India will be included neither in the numerator or denominator- which means that ADRs or GDRs will not be used for computation of 25 percent public shareholding. In that case do you think the compliance will become a little tougher?
Parekh: Yes, it will become tougher for a handful of companies, but not for all companies. I think Sebi should actually review it as offshore shareholding is held by promoters and should definitely be part of the promoter-holding. That is the logical way to look at it.
Q: Not only the offshore shareholding in form of GDRs and ADRs of promoters, but the public will also not be included calculation of in public shareholding norms. So if a promoter holds stake via GDR it will not be computed as promoter-shareholding and if public holds GDR it will not be computed as public-shareholding. What is your opinion on this?
Parekh: I completely disagree with that calculation. I think it should be part of both the numerator and the denominator. But why they have done this is beyond me.
Logically, if it is a public shareholder who is a US resident, he should be considered as public and if it is a promoter holding it through affiliated companies then it should be promotised. I don't see any logic in debarring both categories. You are kind of messing with both the numerator and the denominator then.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.