Satyam sets no floor price for bids

Satyam Computer Services has announced the bidding modalities for acquiring a majority stake in the company, on a day when CBI got custody of its former chairman and suspected partners in the 7,800crore fraud.

Many interested parties are gearing up to take part in the ‘transparent’ bidding process after the Satyam management issued an expression of interest (EoI) on Monday. The earlier issue of knowing the financial position of Satyam has also been taken care of.

The EoI, issued after getting permission from the Securities & Exchange Board of India, sets no floor price for the bidders, though they will have to furnish proof of fund availability of at least Rs 1,500 crore.

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Sebi mulls open offer relaxation for Satyam buy

Markets regulator Sebi on Monday said it was considering a waiver of regulations that guide how shares should be priced in an acquisition in the case of Satyam Computer Services. Chairman CB Bhave told reporters after a Sebi board meeting that he had received a letter from the newly constituted Satyam board to exempt it from certain provisions of the Sebi (Substantial Acquisition of Shares & Take overs) Regulations,1997.

Bhave said the January 7 acknowledgement of a Rs 7,800-crore accounting fraud by erstwhile Satyam chairman B Ramalinga Raju had created an unusual situation in the pricing of the scrip. Hence, there was a genuine need to look into this matter, said Bhave. “We will not take this on a case-to-case basis, but will look at it generally and will make changes in the amendments so that such abnormal cases are handled through a transparent mechanism,”he said.

The mechanism of arriving at the price will be looked into later, Bhave added. Sources in Sebi said they expect this would be concluded by the end of the week.

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Final fall for a poster boy of Indian Information Technology

On Wednesday,Satyam Computer Services Ltd founder chairman B Ramalinga Raju acknowledged that the company had massaged its balance sheet to show an inflated accrual of Rs 9,440 crore over the years.Moreover,he confessed in a letter to the board and market regulator Sebi, that to cover his tracks, he had cajoled one of India’s largest IT companies into a plan to buy out of two infrastructure and real estate firms run by his sons at a cost of Rs 8,000 crore($1.6billion).

As markets regulator Sebi ordered a probe into a scandal that chairman CB Bhave described as“horrifying”,Satyam’s shares fell to a low of Rs 39.95 on the BSE, while its ADRs turned into penny stock, slipping below a dollar to 85 cents, a drop of 91% since last night. The ministry of corporate affairs is mulling reference of the case to the Serious Fraud Investigation Office after a report from the registrar of companies,Hyderabad.

In its wake,Indian investors are now left wondering whether the fabled run of India’s IT sector is over. For corporates across sectors, the big fallout would be on valuations abroad, while family-run enterprises could now find themselves field in gun comfortable questions on corporate governance.

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Sebi mulls lower entry level for fast-track issues

More relief may be round the corner for companies making public issues. After unveiling the twin measures of easing the pricing norms for qualified institutional placements (QIPs) and collapsing the rights issue timelines, market regulator Securities & Exchange Board of India (Sebi) is considering lowering the market capitalisation threshold for fast-track issuances by companies to make such issues easier to execute.

The regulator had, in August 2007, unveiled norms for fast-track issuance of securities (FTIs), a simplified process for making public issues, where it had set a condition that such issues would be allowed in the case of companies that had an average free float market capitalisation of at least Rs 10,000 crore or more during the previous year.

Companies and industry associations have petitioned Sebi to reduce this threshold to Rs 5,000 crore, so that the relatively small companies can find capital raising easier in the present choppy market conditions.

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RITES public offer on bumpy track despite Lalu go-ahead

Stake sales in public sector units typically get thwarted by the ministers in charge of those PSUs or leaders with a stronghold in regions where the PSU’s main operations are — for fear of losing turf. The stake sale of RITES Limited, the technical wing of the Indian Railways, is an unusual case.

Though the idea to sell part of the government stake in the company was scotched by the NDA’s railways minister Nitish Kumar, UPA’s Lalu Prasad revived the idea on his own and prodded RITES as well as the rest of the government machinery into action. Yet, the public issue of RITES that was expected to be launched by now is held up as the government hasn’t managed to fix a price band for the sale of shares. A group of ministers (GoM) headed by finance minister P Chidambaram set up to fix the price band for the IPO, was scheduled to meet over the weekend, but the meeting had to be postponed for a later date. If the price band is not decided suitably ahead of June 30, the public issue will be further delayed.

This is because RITES will have to revalidate its financial results, for the quarter ended March 2008, and seek a fresh approval from the stock market regulator, an official said. A draft red herring prospectus had been filed by RITES with the Securities and Exchange Board of India (SEBI) for the IPO in April.

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Sebi to make electronic-application easy

Sebi has decided to set up a working group of banks for a pilot project aimed at implementing its biggest move yet on the primary market, that of making the new issue application process simple so that funds do not have to exit the accounts of investors.

This move, loosely seen as an electronic form of the earlier Stock invest scheme, will ensure that applicants do not have their funds locked into the new offers without any certainty over how much allotment they will get. The pilot project,to be implemented in a clutch of cities, would begin in three months' time,a top Sebi official to ldFE.

This process would essentially mean that the money committed to applying for public offers would remain locked in investors' bank accounts. But, this amount does not leave a bank,it is merely locked.
Once applicants are allotted shares, an equivalent amount is the non locked from their accounts,electronically.

This process eliminates the hassle of refunds, since the funds remain in the accounts of the applicants. Of late, several investors who have applied for new offers have been crying hoarse about their funds being blocked, while they await refunds for days. In fact, Sebi sources aid the regulator was still grappling with refund problems of some large issues of this calendar year and even of those floated four years ago.

"We are talking to the banks. The working group will be comprising banks from both public and private sectors. They will then let us know how the system will be put in place and what the challenges are," the Sebi official said.

The pilot project would begin in three months in cities where these banks had the required infrastructure in place,the official added.

Sebi has made it clear that reducing the time gap between the closure of an issue and its listing is also a key priority, but the first big move it wants to make on the primary market is to make sure that monies do not leave investors' accounts when they apply for offers."That will be a big change from the current regime,"Sebi sources said.

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Sebi likely to unshackle REITs

To make the listing of Real Estate Investment Trusts (REITs) more attractive in the domestic market, the Securities and Exchange Board of India is looking at raising the cap on the extent a REIT can invest in a project.

Sebi is also mulling to increase the limit of a single entity's investment.

Sources said Sebi was likely to revise the current draft regulations, which limit a REIT's exposure to 15% of a single real estate project and a single group's exposure to 25% of a project. These caps keep developers from owning controlling stakes in projects, which is not the case in other countries.

Once the draft regulations are modified, they would become much more realtor friendly and make their listings in India more favourable. Real estate developers, law firms and financial institutions have already held a series of meetings with Sebi officials to drive home the point.

If a relaxation does not happen and developers float

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CBDT throws ball back at Sebi

Having missed the February 1 deadline, institutional investors may have to wait longer before they can sell short.

Putting the onus back on market regulator Securities and Exchange Board of India (Sebi) for the delay in introducing short-selling by these investors, the Central Board of Direct Taxes (CBDT) has said it will make a move only after the scheme is launched.

Government sources told FE, "The CBDT has indicated that it can only clarify something which is already in effect.

Since the scheme has not been announced so far, it has conveyed its inability to provide clarifications."

Short-selling happens when investors sell securities they do not own, expecting that their prices will fall in the future. The investors then expect to buy the same securities when the prices fall.

CBDT's assistance had been sought because confusion remained over whether shortselling transactions would be settled by the proposed securities lending and borrowing (SLB) system, operated through the stock exchanges.

Current income tax rules say any stock market transaction made through a stock exchange is a share transfer and, therefore, shall attract the securities transaction tax.

Government sources added that Sebi was also likely to dealy its announcement due to the high market volatility. Sebi has adopted a wait-and-watch policy and is likely to introduce the scheme only when the stock markets stabilise.

Meanwhile, to spur government action, many domestic players are considering filing representations to Sebi on various issues of the SLB system. The contract tenure, the exact taxation treatment and the number of stocks allowed for lending and borrowing are the key issues that will be part of a ‘white paper' to be submitted to Sebi.

The SLB was set to start simultaneously with short-selling for institutional investors, but was held back due to the confusion over the delay in CBDT's clarification.

Manoj Vaish, president & CEO-India, Dun & Bradstreet Information Services India, said, "Yes, we are going to prepare a white paper on the key issues and submit it to Sebi in the next two to three days. There are some small and some prominent issues like the tenure for a contract, the tax treatments to these contracts and the number of stocks which are allowed for the SLB, which we need to put forward to Sebi."

In December 2007, Sebi had proposed to introduce a securities lending market in India and permit institutional investors to sell short. Sebi sought to put in place a fullfledged SLB scheme for lending a thrust to short-selling.

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