IndiaCorpLaw

Regulatory Steps Towards Public Offerings and Transparency

The Economic Times reports that SEBI has issued a circular which requires companies with less than 25% public float to raise funds through public offering of securities rather than through private placement to institutions, or QIPs. This is with a view to increasing the public holding in listed companies and to contain stock price manipulation.

SEBI’s move comes close at the heels of its order on another matter involving unlisted companies in the Sahara group who were purportedly raising finances from a wide group of investors without following the process required for a public offering. That order has, however, been stayed for the time being by the Allahabad High Court.

These measures indicate SEBI’s preference for a public offering process, when the situation so warrants, so that the securities are issued through a transparent process using a disclosure document that subjects issuers and related parties to appropriate liabilities for misstatements.

Interestingly, the urge to introduce transparent measures for primary securities issuances and secondary market trades is not unique to SEBI. The SEC in the US is faced with similar concerns with widespread trades involving high-profile companies such as Facebook, Twitter and LinkedIn, which are yet to float their shares widely through IPOs.