INDIA BUSINESS WORLD - MAY 2006
THE MONTH THAT WAS...

LISTED COS CAN PLACE SECURITIES WITH QIBS

 IN AN initiative that may encourage Indian companies to raise money in the local markets rather than overseas, Sebi has allowed listed companies to mobilise funds on domestic stock exchanges by placing securities with qualified institutional buyers (QIBs).

According to the guidelines issued on Monday, a company listed on a stock exchange with a country-wise network of trading terminals will be allowed to place securities with QIBs. The company must also fulfil the requirement of minimum public shareholding specified in the listing agreement.

Companies can issue equity shares or any other securities (other than warrants) such as fully/partly convertible debentures. Each company can raise total funds only up to five times its net worth (equity plus reserves) in one financial year. There will be a lockin period of one year during which QIBs will not be allowed to sell the securities in the open market. This may act as a dampner as FCCBs and GDRs, against which these new instruments will compete, have no lock in.

Only listed companies will be allowed to sell shares to QIBs. The move will enable listed companies to raise funds quickly, in a matter of hours, instead of keeping the issue open for a minimum of 4 days as is the present norm. Also, there will be no quotas for retail and high net worth investors. These procedural requirements of follow-on offerings have resulted in many Indian companies raising funds overseas. However, IPOs cannot be sold in this manner though pre-IPO private placements are increasingly becoming common.

“Over a period of time, it will reduce export of capital from India. It will help compete with the GDR/FCCB market. The move will also open up options for Indian retail investors since securities will have to be listed on domestic bourses. In case of GDRs/ADRs, shares need not ever come into the Indian market,” told SEBI chairman M Damodaran.

According to the guidelines, a minimum of 10% of the issue should be reserved for mutual funds. SEBI has also prescribed limits on the minimum number of institutional investors with whom securities would be placed.

Accordingly, a Rs 250-crore issue should have at least two investors and an issue in excess of Rs 250 crore should be allotted to five investors or more. Companies are not allowed to make placement for more than 50% of the issue size to any single investor.

FOR this, QIBs belonging to the same group will be treated as a single investor. As regards pricing of the issue, Sebi said the floor price of the specified securities will have to be determined on basis of guidelines applicable to GDR/FCCB issues and the price will have to be adjusted for corporate actions such as stock splits, rights/bonus issues etc.

The guidelines have largely a evoked positive response from market experts. However, it is felt that the one-year lock-in, similar to a preferential allotment, may make this option less attractive.

“This is a good move as companies can now raise funds at much cheaper rates and at higher speed in the domestic market. However, companies will still be seen tapping GDR/ADR or FCCB markets, especially when they want to raise large funds,” said Prime Database managing director Prithvi Haldea. “Allowing Indian companies to make QIB placement domestically is a welcome move. It will help increase liquidity. In case of GDRs, there are issues such as division of liquidity between two markets and delays when it comes to fungibility,” Citigroup MD and India equity capital market head Ravi Kapoor said.

 NIIT Technologies on Monday acquired a 51% stake in UK-based Room Solutions in an all-cash deal of $25 million. The company will acquire Room's remaining equity over the next 18 months.

The IT solutions major also announced plans to invest Rs 100 crore in its new campus in Greater Noida.

The purchase price for the balance 49% stake may vary depending on the financial performance of Room Solutions, though in no case will it exceed Room's revenues. During the year ending March this year, Room clocked a revenue of US$ 25 million.

The company plans to finance the deal through a mix of debt and internal accruals. NIIT said it has already secured a line of credit from its bankers for the buyout.

Room's acquisition is expected to enhance NIIT's capabilities in the non-life insurance space. “We are domain focussed company with insurance being one of our focus areas. But currently we offer solutions only in life-insurance and annuity based products. Room on other hand has a strong presence in non-life insurance market with a proven IP. This synergy will enable us to cross sale each others products in the market,” says Arvind Thakur, NIIT Technologies Chief Executive Officer Arvind Thakur said.

Room Solutions is focused on the commercial insurance market including providing IT solutions to the customers of Lloyds, the largest reinsurance market in the UK.

Talking about this acquisition, Mr Rajendra S Pawar, chairman, NIIT Technologies said, “The strategic direction for NIIT Technologies has been to sharply focus and scale its business in a few select industry segments such as Insurance. ROOM Solutions strengthens our insurance capability by bringing in deep domain expertise in the Commercial Insurance space”.

Scheduled to be operational in 18 months, the first phase of the new campus in Greater Noida will have a capacity for 3000 people. At present the company has 3,300 employees.

“The first phase of the campus spread over an area of 20 acres will become operational in the next 18 months,” NIIT Technologies chief executive officer Arvind Thakur said on Monday.

At present, the company enjoys a manpower of 3,300 employees. Once fully completed, the campus will house up to 12,000 employees.