MUMBAI: In a move that will save companies looking to raise money from the equity markets crores of rupees in fees payable to the regulator and investment bankers, the Securities and Exchange Board of India (Sebi) has approved the extension of validity of the observation letter issued for public/ rights issue to one year from three months now.

As per the norms, a company has to apply afresh to Sebi should the validity of the regulators observations on its application for public/rights issue lapse.

Sebi chairman CB Bhave said the move was made after considering representation from the issuers explaining their inability to raise money under the present market conditions.
At least eight companies, whose approvals for public/rights issues were valid on Thursday, would benefit from the extended window. They will, however, will be required to update Sebi of any material development and file statements of revised revenue figures, as per the rules applicable.

However, the extension will not be applicable to issues, which have allowed their approvals to lapse. "The extension will not be applicable for issues which have lapsed already," CB Bhave said in reply to a DNA Money query.

Over 40 issuers who had Sebi approvals to come out with public/ rights issues have allowed their approvals to lapse due to unfavourable market conditions during this calendar. This included a number of big issues such as Adani Power (Rs 5,630 crore), Jaiprakash Power (Rs 4,000 crore ) Reliance Infratel (Rs 4,000 crore) and DB Corp (Rs 1,000 crore). These issuers will have to file fresh offer documents.

The total size of issues that have lapsed exceeds Rs 27,000 crore. So far in 2008,only 37 issues worth Rs 17,000 crore have seen the light of the day. This is the lowest number seen since 2004 (beginning of the bull run), which saw only 25 issues.

Premature exits barred in new closed-ended funds

In another important move, the regulator has decided that no early exit would be allowed in closed ended schemes launched hereafter.

Schemes which have been approved earlier but not yet launched will also have to be amended accordingly.

It will be obligatory for the asset management company to list the closed-ended schemes.

Experts feel that by making listing mandatory and banning exit options, Sebi has protected mutual funds from potential redemption pressure such as that felt in October.

Under the new rules, an individual or corporate wishing to exit the closed-ended scheme would have to take the secondary market route.

Earlier, mutual funds had exit options, but with load structures. During the October crisis, large corporate investors who had invested in FMPs had piled up redemption requests. The loads did not act as a deterrent for panic-stricken investors, leading to a liquidity crisis.

The changes will not apply to existing closed-ended schemes, but their underlying assets will not have a maturity beyond the date on which the scheme expires, Sebi stated.

Transparency in Sebi board
The Sebi board also decided to adopt a code to avoid conflict of interest among its members. The code will be published on the regulators website before December 12,2008.

In order to bring transparency in the working of the board, it was decided that the agenda papers submitted to the board on all policy issues will also be posted on the website once a decision on the issue has been taken. The minutes of the meeting relating to such items will also be made available after approval by the board. Accordingly, the agenda papers for Thursdays board meeting will be made available on the Sebi website by December 15,2008.

n_subramanian@dnaindia.net

Source : DNA