Sebi proposes to allow pension funds to participate as anchor investors in public issues

Sebi on Wednesday proposed to allow pension funds sponsored by entities that are associates of the lead managers to participate as anchor investors in a public issue.

Presently, pension funds which are not an associate of the lead manager can participate as an anchor investor in the book building process.

However, an exception has been made for pension funds of entities which are associates of the lead manager for participation as an anchor investor in public issue of REITs (Real Estate Investment Trusts).

In its consultation paper, the regulator has proposed that rules should be amended to allow pension funds of entities which are associates of the lead managers, to participate as an anchor investor in a public issue.

Besides, Sebi has proposed amendments to rules pertaining to underwriting agreement for public issues such as Initial Public Offering (IPO) and Follow-on Public Offering (FPO), and pre-conditions for announcing bonus issue by a listed entity and issuance of bonus issues in the dematerialised form.

In addition, the regulator has suggested to include certain requirements with respect to disclosures made in the offer document.

These disclosures require issuers and lead managers to provide access to material contracts and documents for inspection through online means apart from inspection at the registered office.

Also, they should provide complete industry report as part of material documents for inspection both through offline and online modes and display draft offer document and offer document on the website of issuer company.

The issuer making an IPO wishes to have the issue underwritten to cover under-subscription in the issue should upfront and prior to filing the Red Herring Prospectus (RHP) would be required to comply with certain conditions.

Such an issuer should enter into underwriting agreement indicating therein the maximum number of specified securities which they should subscribe to, either themselves or by procuring subscription, at the predetermined price not less than issue price, as per the consultation paper.

"If an underwriting agreement is done after issue closure to cover shortfall in demand without same being disclosed in the RHP (Red Herring Prospectus) is not right in context to investors, as this information was not made available to the subscribing investors while making application in IPO," Sebi said.

Also, this would be a post event decision to save the issue, rather underwriting an eventuality which is not duly disclosed to investors. Therefore, Sebi said this information should mandatorily be included in the RHP and for that purpose underwriting agreement should be entered into before filing of RHP.

With respect to bonus issuance, Sebi suggested a listed issuer should be eligible to announce its bonus issue only if it has received in-principal approval from the stock exchanges for listing of all the pre-bonus securities issued by the listed entity excluding Employee Stock options (ESOPs) and convertibles shares or warrants.

The Securities and Exchange Board of India (Sebi) has sought comments from public on the proposals till March 8.