Sebi’s board to meet on June 18 to take up key proposals for approval: Here’s a likely list

SEBI board meeting on June 18

Capital market regulator Sebi’s board is likely to meet on June 18 to decide on key regulatory proposals, several of which had been floated for public consultation recently, with some of them finding their way into the agenda for discussion.

It is likely that the treatment of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) as equity could be considered by the board when it convenes in June. This was a key demand of the industry for some time and will help in inclusion of REITs and InvITs into equity indices. The proposal to allow more investment by mutual funds into REITs and InvITs is another key demand that may be taken up. Sebi has proposed raising equity funds’ net asset value in REITs and InvITs to 20% from present 10%, while keeping the exposure of debt funds at 10%.

Sebi has also proposed for modifications in the REIT and InvIT regulation for ease of doing business and clarification purpose, such as the definition of ‘public’ for minimum public unitholding requirement, adjustment of negative cash flows at holding company with distributions received from SPV in calculation of net discount cash flow, alignment of timelines for submission of quarterly reports, etc.

The regulator had also floated a consultation paper on ease of doing business for Qualified Institutional placement (QIP). This proposal, when finalized, could help companies file only relevant details in the documents. As per existing norms, companies raising funds via QIP have to file lengthy documents, which is both time consuming and leads to additional paperwork.

Flexibility to Alternative Investment Funds (AIFs) in co-investment opportunities to investors within the AIF structure is also a much-demanded ask, which may be considered. Co-investment is an industry practice that allows certain AIF investors to own additional shares in the investee companies. Sebi has proposed allowing AIFs to offer such co-investment opportunities through a co-investment vehicle (CIV) as a separate scheme of the AIF. Also, allowing managers of AIF to provide advisory to any investors - irrespective of whether the AIFs has invested in such listed securities or not - could also be taken up.

Another Ease of Doing Business proposal for public consultation is to simplify the registration process and ease ongoing compliance obligations for FPIs investing in only Indian Government Bonds (IGBs). Such investments carry relatively lower risk and are limited to sovereign debt instruments only. This proposal is open for feedback till June 3.

The key proposal of demerger of clearing corporation from exchanges is also pending. Sebi has proposed for demerger so that clearing corporations become independent, and exchanges don’t have to infuse capital, however, exchanges have a different view and want the existing structure to continue. Experts believe making clearing corporations independent without making them financially independent may not be a prudent idea.

A settlement scheme for commodity brokers entangled in NSEL matter may also go for board approval. Sebi had issued more than 300 showcause notices in the matter and appellate tibunal SAT had advised the regulator to consider such a proposal as per consent regulations. Sebi had found that commodity brokers violated various Sebi laws and were not fit and proper to be an intermediary. Multiple brokers had challenged the order before the SAT.

Separate delisting mechanism for voluntary delisting of government companies, or PSUs, is also a key proposal on which Sebi has sought public comments. In its consultation paper, Sebi noted that many PSUs have low public shareholding, outdated business models, weak future outlook, and higher market prices due to low free float. These are also financially burdensome for the government to delist. Due to these drawbacks, and to facilitate delisting of such PSUs, Sebi has proposed that a separate carve out for voluntary delisting should be created. Sebi suggested delisting for such PSUs at a fixed price of at least 15 per cent premium over the floor price. Sebi has also proposed to abolish the requirement for two-thirds public shareholder approval in cases where the promoter plus PSU holding is already 90 percent. Upon exit price to the public shareholders, the regulator has suggested to continue with the current pricing formula based on market price, book value, among others.

Usually, matters requiring a regulatory change come up before the board for a nod, but sometimes, operational issues that do not require board approval but are significant for the market are also placed before the board’s information memorandum.

An email seeking comments from Sebi did not elicit any response.