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Sebi saves Nalco offer by changing rule

Source : BUSINESS_STANDARD
Last Updated: Fri, Feb 08, 2013 04:12 hrs

The Securities and Exchange Board of India (Sebi) has saved the Rs 1,500-crore offer for sale (OFS) of state-owned National Aluminium (Nalco) from going bust by altering a key criterion in the regulatory framework.

Nalco is one of the important candidates identified for the Union government's Rs 30,000-crore disinvestment programme for 2012-13. The Centre plans to sell 12.5 per cent in the Odisha-based mining company and has appointed Enam Securities, SBI Caps and IDFC to conduct the OFS.

An OFS on the stock exchange is a new method of divestment introduced by Sebi to enable promoters and promoter-group shareholders to sell their shares to the public. It has emerged as a quick and efficient mechanism over the past year. However, not all companies could opt for this route. The regulatory framework allowed only the top 100 companies by market capitalisation to do so. Among the rest, only those which had to meet the minimum public shareholding norms were allowed.

When the disinvestment plan was cleared by the Union Cabinet, Nalco was the 83rd largest company by market capitalisation and was eligible for an OFS. Between the end of September and early November, however, the stock fell a little over 12 per cent, to around Rs 45. It remained at these levels till early December before recovering. For the quarter-ended December, the shares lost around four per cent, when the broader market represented by the Sensex gained 3.5 per cent. This, in turn, dragged down the average market capitalisation and it was no longer a company in the top 100.

Since Nalco had already complied with the minimum public shareholding norm, with the government holding less than 90 per cent, it became ineligible to sell shares through OFS.

But, taking other divestment routes such as a follow-on public offering would have entailed fresh Request For Proposals, offer documents and Sebi approvals. Time was not on the issue’s side, as the divestment calendar practically closes with the Union Budget in late February.

As North Block scampered to save the issue, Sebi came into play. A board meeting on January 18 cleared a proposal to relax the eligibility criteria for OFS. In a circular dated January 25, it said, “All promoters/promoter group entities of the top 100 companies by market capitalisation in any of the last four completed quarters, market capitalisation being calculated as average market capitalisation in a quarter,” would be eligible to sell shares through OFS.

As it was in the top 100 list in the previous three quarters, the Nalco OFS, in suspended animation for well over two months, sprang to life after this move.

An investment banker, who didn’t wish to be named, confirmed the change in calculation criteria for the top 100 was done to aid the Nalco offering. “The issue was supposed to take place in the third quarter; however, the government decided to postpone it to the fourth quarter. In January, the department of disinvestment and merchant bankers realised the company had slipped below the top 100 and, hence, doesn’t qualify for OFS. Accordingly, feedback was given to Sebi, which found a way out,” he said. An email seeking comments, sent to Sebi yesterday, did not elicit any response.

Along with Nalco, nine other companies will benefit by this relaxation. Four of these companies are state-controlled – MRPL, Bharat Electronics and Petronet LNG.

Since Nalco had already complied with the minimum public shareholding norm, with the government holding less than 90 per cent, it became ineligible to sell shares through OFS.

But, taking other divestment routes such as a follow-on public offering would have entailed fresh Request For Proposals, offer documents and Sebi approvals. Time was not on the issue’s side, as the divestment calendar practically closes with the Union Budget in late February.

As North Block scampered to save the issue, Sebi came into play. A board meeting on January 18 cleared a proposal to relax the eligibility criteria for OFS. In a circular dated January 25, it said, “All promoters/promoter group entities of the top 100 companies by market capitalisation in any of the last four completed quarters, market capitalisation being calculated as average market capitalisation in a quarter,” would be eligible to sell shares through OFS. As it was in the top 100 list in the previous three quarters, the Nalco OFS, in suspended animation for well over two months, sprang to life after this move.

An investment banker, who didn’t wish to be named, confirmed the change in calculation criteria for the top 100 was done to aid the Nalco offering. “The issue was supposed to take place in the third quarter; however, the government decided to postpone it to the fourth quarter. In January, the department of disinvestment and merchant bankers realised the company had slipped below the top 100 and, hence, doesn’t qualify for OFS. Accordingly, feedback was given to Sebi, which found a way out,” he said. An email seeking comments, sent to Sebi yesterday, did not elicit any response. Along with Nalco, nine other companies will benefit by this relaxation. Four of these companies are state-controlled – MRPL, Bharat Electronics and Petronet LNG.




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