Need to protect investors from illegal cos: SEBI
The decline in companies' propensity to raise capital from the market over the past few years is more striking vis-a-vis the other BRIC countries, said Securities and Exchange Board of India (SEBI) chairman U K Sinha here on Tuesday.
He was speaking at an interactive session in Kolkata organised by Confederation of Indian Industry (CII) Eastern Region.
According to him, the trend is alarming for regulators.
The amount has dropped from Rs 67,000 crore a few years ago to Rs 14,400 crore in the current financial year, said Sinha.
"Corporates have even withdrawn even after filing papers with SEBI and in the past year Rs 60,000 crore of financing has been shelved. This has prompted the regulator to take several steps including reducing the threshold limit for fast-track fund raising from Rs 5,000 crore to Rs 3000 crore and rejection of offer document," he said.
Shri Sinha said in many cases, it has been observed that some IPOs continuously trade below their issue price. Therefore, SEBI has put certain obligations on investment bankers, and henceforth proper and due diligence and a good track record will be taken into account.
Sinha also said other than the 37 dropped out companies and 51 companies taking no measure, most companies have complied to the Minimum Public Share Holding and have been benefitted.
He revealed that 'Offer for Sale' mechanism introduced by SEBI last March has been successful.
Speaking of medium and small scale industries, he said 18 companies were listed in BSE in last year. In this context he made a distinction between regional stock exchanges and SME exchanges.
He said there are 21 stock exchanges where there has been no trading in the past few years and therefore there is a need to close such exchanges.
Many stock exchanges were opened in the country due to tax exemptions available and other mandate such as compulsory listing of company in the city where the headquarters of the company is located, he said.
Sinha reiterated that SEBI will not allow operation of regional stock exchanges that enter into unsolicited risk domain because of non-conformity to SEBI.
In fact, responding to a query, he said SEBI will support the closing of non operational regional stock exchanges.
A platform would be introduced where SME can be listed without IPO, he added.
Sinha also observed that in India, particularly in the Eastern Region, growth of trade and industries are driven primarily by banks rather, not markets.
"This shows a predisposition of the investors towards debt." Therefore, he spoke of the need for developing the corporate bond market in India and asked industries to look into avenues to raise capital.
According to him, the Budget 2013-14 has proposed several measures to develop the capital bond market especially for Foreign Institutional Investors.
Sinha said that SEBI is taking several steps to draw away investors who are investing in "illegal companies".
In this context he observed that these companies offer to double the money in three or four years apart from paying upto 15pc commission to the agents and expressed doubts about their mode of business.
Sinha welcomed the offers from CII to assist SEBI in developing the capital market and invited recommendations on the White Paper on Corporate Governance.
He discussed the three broad aspects of the paper - compensation of top personnel, board governance including the role of Independent Directors and related party transaction.
He also said the regulator would try to balance between the role and responsibility of Independent Directors.
Sinha said SEBI would fix the final regulations on buyback that would genuinely help the investors and disable the companies from merely increasing their issue prices.
He also said that the KYC Registration Regulation Authority has reaped remarkable results and the Finance Minister of the country has proposed to introduce one KYC across all accounts in the financial market.
Sinha also revealed that SEBI has set up an Expert Group on insider trading and the committee is expected to come out with recommendations of cyber trading soon.
The SEBI Chairman also said the Call and Auction mechanism introduced by SEBI has worked well to contain the volatility of price during the opening day of IPO.
He added that many of the companies are not revealing the entire nature of pledges and encumbrances with their issues to the stock exchange as mandated by SEB. Therefore steps will be taken against them.
R K Agrawal, Chairman, CII Eastern Region, pledged support for SEBI in their endeavor to develop the capital market and make it more attractive including encouraging retail participants, SME exchanges, market makers and clamping down on insider trading and various Ponzi schemes.
Subir Chaki, Chairman, CII West Bengal State Council, delivered the vote of thanks.
Saugat Mukherjee, Regional Director, CII Eastern Region, was also present.
(Posted on 26-03-2013)