In yet another move to boost the capital markets, the Government has relaxed the minimum pricing norms for the issue of securities (being GDRs/ADRs/FCCBs) to foreign investors. This comes on the heels of similar relaxations provided to qualified institutional placements (QIPs) some weeks ago.
There are two changes proposed:
(i) the minimum price will be the average weekly high and low prices for the 2 weeks prior to the relevant date, instead of the previous price determined as the higher of the average for 6 months and 2 weeks;
(ii) the relevant date for price determination will the date on which the board decides to issue to securities, and not 30 days prior to the shareholders’ resolution as it earlier stood.
The measures will ensure that the price is commensurate with the current market rather than an average over a longer period. This will help companies raise finances at lower prices during falling market conditions.
Warrants
Further, as the Economic Times reports, some procedural issues regarding issue of warrants (which can be converted into shares over a period of time) are also being resolved so as to make it convenient for foreign investors to take warrants in Indian companies.
I received the following pertinent observations from Rahul Guptan:
As usual i think this amendment has created a mismatch between the ADR/GDR/FCCB regime and the preferential allotment regime. If you see the amendment to the DIP guidelines in relation to preferential allotments, the relevant date is still 2 weeks prior to a date 30 days prior to the shareholders meeting. Whereas the ADR/GDR/FCCB regime is linked to the date the Board decides to issue the securities.
Also, this is again different from the relevant date used for QIP issuances. The relevent date for QIPs is linked to the date the Board decides to ‘open the issue’.
This is creating a strange arbitrage opportunity to structure deals depending on the nature of the pricing that the three dates throw up and the view that one takes on the timing of when the Board ‘opens an issue’ for a QIP or ‘decides to issue securities’ for a GDR. Clearly a case for an amendment is required to remove the ambiguities.
Regards
Rahul
“This is creating a strange arbitrage opportunity to structure deals depending on the nature of the pricing that the three dates throw up” can u please elobrate on the same. what are the structure deals are u talking about? can u also give me a link or book on the depository receipts
from,
A student of Finance