Government urges SEBI to ease FPO norms for divestment

18 Aug 2014

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The Indian government has urged the Securities & Exchange Board of India (SEBI) to relax rules for follow-on public offerings (FPOs), according to reports.

For its 2014-15 disinvestment programme, the government wants to give more weight to the FPO route rather than the offer-for-sale (OFS) route, to ensure better participation from retail investors. In the past two fiscal years, most disinvestments were done through the OFS route.

OFS issues only have a floor price, while FPOs give a price band within which investors could bid. The latter offers them more certainty on pricing. An FPO also requires a fixed minimum allocation to retail investors, where every investor will receive a certain minimum number of shares, if available; while OFS issues lack such certainty.

Both FPO and OFS routes are used by listed companies for secondary share sales. The OFS route is cost- and time-effective, whereas FPOs are costlier and consume more time, encouraging many promoters to opt for the former.

For the current fiscal, the government has fixed an ambitious target of raising around Rs58,000 crore via disinvestment. Of this, Rs43,000 crore is expected to come from sale of shares in public-sector undertakings.

Meanwhile, the market regulator is said to have commenced a discussion with market participants for possible changes to the FPO framework.

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