A committee appointed by the capital market regulator is evaluating the option of allowing companies to issue convertible debentures at the time of an initial public offer (IPO) with an aim to instill higher confidence among the investor community.
The primary market advisory committee (PMAC) of the Securities and Exchange Board of India (Sebi) is mulling over this alternate route at a time when investors are staying away from equity public offers fearing sharp price falls and also against the backdrop of stiff opposition to the proposed safety net feature proposed as part of IPOs.
?The PMAC of Sebi is currently debating an alternative route to allow corporates to issue convertibles (debentures), which, after a certain time, must be converted into either equity or other debt instruments,? said Sebi chairman UK Sinha at a seminar on investor protection.
While refusing to elaborate on the structure or mechanism of offering convertibles, Sinha said the companies could issue convertibles and after a certain period of time, these necessarily would have to be converted into equity or else would be treated as debt instrument. ?We are still debating in our primary market advisory committee. They are yet to take call,? he added.
Sinha pointed out that nearly two-thirds of IPOs floated during the last three years are quoting below their issue price. At this stage, Sebi has not been able to finalise whether safety nets should be made mandatory or not, he said. Under the proposed safety net scheme, if the market value of the shares falls below the issue price at any time during first six months of listing, promoters will have to buy back shares at the sale price from the original applicants. The buyback, however, is proposed to be subject to a maximum of 1,000 equity shares per applicant.
Tax rebate for REITs
Sebi also pitched for tax incentives to woo investors into the proposed real estate investment trusts (REITs), which is expected to go a long way in helping cash-strapped companies raise funds.
?For REITs to be successful, they have to be tax efficient. We will ask the tax authorities to consider some incentives for the real estate investment trusts,? said Sinha. ?We will talk to the IT department to make it happen,? he added. In its draft regulations relating to REITs, Sebi has broadly applied a framework similar to that of an IPO requiring listing of units issued by REITs. The regulator has also prescribed various norms, including those related to minimum offer size, public float, and size of assets.
