Government's fund raising agents! We could not think of a better term for job description of regulatory heavyweights like the Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI). Both entities have been working overtime to ensure that the government coffers are full. Or at least that is what the government is coercing them to.
The RBI has been busy buying government bonds at a time when liquidity is tight. With the government exceeding its borrowing limit, private corporate are getting crowded out in the debt market.
At least when it came to equities, the government had to earlier compete with the private sector in raising capital. But the latest SEBI guideline gives a head up to the government on that too. We are referring to the announcement allowing promoters to sell shares through an auction on the stock exchanges (institutional placement programme, IPP).
Prima facie, the approval seems to enable the government to milk its cash cows at a time when it is badly strapped for funds and markets do not facilitate easy share sale options. Thanks to the muted sentiments in Indian markets, the government's ambitious Rs 400 bn disinvestment plan is on the verge of getting junked. Hence the only way to sell share in PSUs at attractive prices is through auction on the exchanges. Also, through the IPP route, all listed companies would be able to comply with minimum of 25% public shareholding.
However, we fail to understand why SEBI chose to come out with this kind of a regulation when there are enough means available for promoters to part sell their stake and liquidate their holdings. Also, the fact that in case of stocks with low liquidity, the auction price may come in at a good premium than market price will be akin to enjoying a preferential status over minority investors. Perhaps this has to do with the fact that the Government is extremely concerned about its ballooning fiscal deficit and has therefore forced SEBI to bring out this regulation. If this is indeed the case then it is not a good sign as regulators ought to protect the interests of minority shareholders and not act as an agent of rich promoters and majority shareholders like the Government of India.
The RBI has been busy buying government bonds at a time when liquidity is tight. With the government exceeding its borrowing limit, private corporate are getting crowded out in the debt market.
At least when it came to equities, the government had to earlier compete with the private sector in raising capital. But the latest SEBI guideline gives a head up to the government on that too. We are referring to the announcement allowing promoters to sell shares through an auction on the stock exchanges (institutional placement programme, IPP).
Prima facie, the approval seems to enable the government to milk its cash cows at a time when it is badly strapped for funds and markets do not facilitate easy share sale options. Thanks to the muted sentiments in Indian markets, the government's ambitious Rs 400 bn disinvestment plan is on the verge of getting junked. Hence the only way to sell share in PSUs at attractive prices is through auction on the exchanges. Also, through the IPP route, all listed companies would be able to comply with minimum of 25% public shareholding.
However, we fail to understand why SEBI chose to come out with this kind of a regulation when there are enough means available for promoters to part sell their stake and liquidate their holdings. Also, the fact that in case of stocks with low liquidity, the auction price may come in at a good premium than market price will be akin to enjoying a preferential status over minority investors. Perhaps this has to do with the fact that the Government is extremely concerned about its ballooning fiscal deficit and has therefore forced SEBI to bring out this regulation. If this is indeed the case then it is not a good sign as regulators ought to protect the interests of minority shareholders and not act as an agent of rich promoters and majority shareholders like the Government of India.
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