Easier IPO Pricing & Disclosure Rules Likely

MUMBAI: Indian policy managers are considering amendments to primary market rules to give companies greater leeway in pricing initial public offerings (IPOs) and disclosures.

SEBI rules on pricing of IPOs stipulate that if the issue price is less than Rs 500 per share, the face value should be Rs 10 per share. If the issue price is Rs 500 or more, the issuer (unlisted) company can fix the face value below Rs 10 per share, subject to the condition that it should not be less than Re 1 no matter what.

According to sources, a proposal is set to be considered at the regulator’s forthcoming board meeting to allow firms to issue shares at a price of less than Rs 500 even when the face value of the shares being issued is less than Rs 10 per share. This needs amendments to Sebi’s disclosure and investor protection guidelines.

Besides, a change in the disclosure norms relating to financing of projects is also being considered. This pertains to the condition that no company can go ahead with a public or rights offering of securities unless firm arrangements of finance through verifiable means towards 75% of the stated means of finance have been made and disclosed in the prospectus.

A proposal to amend this clause so that the arrangements need not be disclosed in the prospectus may also be considered, the sources said. Recently, Reliance Power, which has filed its draft red herring prospectus for a mega issue, sought an exemption from the regulator to issue shares of a face value of Rs 2, though the issue price is expected to be well below Rs 500.

In its draft red herring prospectus, the company said it has mandated certain banks and financial institutions to arrange up to $6 billion in syndicated loans “for us on a secured basis to fund the identified projects”. “Although these mandates include preliminary term sheets, these term sheets are indicative only and are subject to conditions and commercial negotiations. We may not be able to fulfil all or any of these conditions or reach agreement on commercial terms with these banks and financial institutions, in which case they would have no obligation to arrange such loans for us,” the draft prospectus says.

Analysts say by issuing shares of a face value of Rs 2 and pricing it way below Rs 500, issuers can gain in terms of perception of a higher valuation. It also helps in managing liquidity in the stock by controlling the free float, say stock brokers.

Recently, the regulator granted an exemption to an issuer—Purvankara Projects—to issue shares of a face value of Rs 5 and price the offering at below Rs 500 after the company’s IPO floundered.