Sebi Notifies Norms for Listing of Preference Shares

Sebi said listing of privately placed non-convertible preference shares to require minimum size of Rs.10 lakh per investor

Market regulator Securities and Exchange Board of India (Sebi) has notified a new set of regulations to govern the issue and listing of non-convertible preference shares, a move expected to bring more transparency in raising of funds through such securities.

To safeguard the interest of small investors from such high-risk securities, Sebi said the listing of privately placed non-convertible, redeemable preference shares would require a minimum application size of Rs.10 lakh for each investor.

Besides, the public issuance of such shares would require a minimum three-year tenure for the instruments and at least a rating of ‘AA-’ or an equivalent investment grade.

A preference share is an equity security with the properties of both an equity and a debt instrument. It usually carries no voting rights, but may carry a dividend. There have been many instances of public investors being misled through the sale of such shares, as there have been ambiguity about regulations governing them.A defined framework for the issuance and listing of such shares would also make it easier for banks and infrastructure companies to garner funds through this route.

The new norms would provide for a “comprehensive regulatory framework for public issuance of non-convertible, redeemable preference shares and also for listing of privately placed redeemable preference shares,” Sebi said in a statement on Friday. The markets regulator said the new norms would be applicable to issuances by banks of non-equity instruments such as “perpetual non-cumulative preference shares” and “innovative perpetual debt instruments”, which are in compliance with the specified criteria for inclusion in additional tier-I capital. Such instruments can be issued by banks to meet Basel III norms.

In the last three years, Indian companies have raised over Rs.25,000 crore through preference share issues. In case of a public issuance of non-convertible redeemable preference shares, Sebi said the issuer is required to make an application to a recognized stock exchange for listing such securities and needs to obtain approval from the bourse regarding the same.

The issuer is required to disclose about three years of audited annual reports, among other things, along with the listing application to the bourse.

In addition, the issuer should disclose details of any outstanding loans, any defaults committed, and other financial indebtedness including corporate guarantees given by the company in the past five years.

In case of a delay in listing of such shares beyond 20 days from the deemed date of allotment, the company would have to pay penal amount of at least 1% per annum over the dividend rate from the expiry of 30-day from the deemed date of allotment till the listing, Sebi said.

Mint, New Delhi, 14-06-2013