Less than a fortnight ago, a company named SAR Televenture, which is listed on the NSE SME platform, came out with a so-called composite issue comprising of a rights offering of Rs 300 crore and a follow-on public offer of Rs 150 crore.
It was the largest offering in the SME IPO arena of the country, which was launched way back in 2012. More importantly, it was a successful one as the rights issue component got subscribed 1.37 times and the FPO was subscribed nearly 7.5 times.
Why does this suddenly assume importance, one may ask. More so, since a composite issue hit the markets after a gap of nearly 15 years – Manjushree Extrusions had come out with such an issue in 2007.
Because none other than Sebi chairperson Madhabi Puri Buch has brought to the fore the concept of a composite issue, which was always present in the regulatory framework of the Indian stock market but has rarely been used.
Also Read: Coming soon, a 'combo product' of rights and preferential issue, hints Sebi chair
On Friday, Buch, while speaking at a capital markets conference organised by industry body FICCI, said that the market watchdog is in the process of finalising two new innovations - a combo product of rights issue and preferential allotment, along with a demystified offer document.
“One of the innovations you are going to see very soon, that we have a positive response for is a combo product of a rights issue and a preferential allotment,” said the first female head of Sebi.
As mentioned earlier, the concept of composite issue is already mentioned in the Sebi regulations.
“When the issue of shares or convertible securities by a listed issuer on public cum-rights basis, wherein the allotment in both public issue and rights issue is proposed to be made simultaneously, it is called composite issue,” as per information available on Sebi website.
Interestingly, Sebi chairperson has also said that the composite issue route could be structured in a manner that would not require a merchant banker as well.
Currently, preferential allotments and rights issue of less than Rs 50 crore can be executed without appointing a merchant banker.
"The concept of composite issues already exists but the route has rarely been used, which shows that the current framework needs to be tweaked to make it more market friendly. Since Sebi has taken industry feedback, one can expect that the roadblocks can be cleared to make it a popular route," said the head of a domestic merchant banking entity, wishing not to be named as the guidelines are not out yet.
Meanwhile, if the investor response to the composite issue of SAR Televenture is anything to go by, then there are enough takers across all investor categories for such an offering.
"Composite issue is out-of-box issue structure that we have successfully managed for the first time in the alternate capital market space and after more than 15 years in the overall Indian capital market," said Mahavir Lunawat, Founder, Pantomath Capital, which was the sole merchant banker for the SAR Televenture composite issue.
"Composite Issue enables existing shareholders to participate in the issue and at the same time provides window for public shareholders at large to participate as well. Unlike preferential allotment, composite issue does not have pricing norms and the pricing can be decided with enhanced flexibility, in the larger shareholder interest," he added.
In the FPO component, qualified institutional buyers (QIB) category was subscribed 8.31 times while the non-institutional category was subscribed 11.26 times. The retail portion of the FPO was subscribed 6.51 times.
Further, the anchor portion of the FPO saw the company raising Rs 42.74 crore with participation from marquee investors like BoFA Securities, Intuitive Alpha Investment Fund, and Negen Undiscovered Value Fund among others.
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