Norms governing issuance of global depository receipts (GDRs) are set to be tightened.
The Securities and Exchange Board of India (Sebi) is in discussion with the government on this after malpractices by a number of companies came to light, Sebi chairman U K Sinha said on Friday.
Among the suggestions made by the market regulator is a restriction on the time period for which the proceeds are to be kept outside the government.
“(There are instances) of 99% or even 100% of the money not coming to India. You are issuing GDRs because you have a business need and certain plans to implement. But for two years you are not bringing the money to India and instead park it in a financial institution outside India and this doesn’t give us good comfort,” said Sinha.
Sebi last month barred seven companies from raising money from the capital market and 10 other individuals and entities from dealing in securities after it found that they were involved in manipulating GDR issues involving large-scale conversion of GDRs into underlying shares by foreign institutional investors (FIIs) and sale to specific sets of investors in recurring events.
The regulator also found that these companies had issued GDRs much in excess of their paid-up capital, something it would like the government to restrict.
“We are concerned with the number of times they are raising and the way GDRs are cancelled into Indian shares and the money which have been supposed to be raised via GDRs. A company in one case issued GDR, which was 1,300 times than total paid-up capital. I don’t want to discuss any particular case here, but we have discovered a number of loopholes and irregularities and we are in touch with the government to make necessary changes. Based on our findings and observations, we are suggesting what further reforms and changes are required in the GDR regulations,” said Sinha.
These anomalies were thrown up by Sebi’s data warehousing, business intelligence system and an integrated surveillance system, which was implemented over the last six months. “The systems, whose first phase has already been implemented, is already throwing up lots of data and alerts, and we are discovering how people are trying to misuse and get around Sebi regulations,” Sinha said on the sidelines of an event.
Sinha raised hopes for a much-awaited abolition of securities transaction tax (STT). While the decision rests with the finance ministry, he said, taxes like STT raise the burden on investors.
“STT is not a issue for Sebi but for the government to decide. One thing is there. I won’t like to comment whether STT needs to be withdrawn, but statutory dues are today forming a high percentage of cost of transaction and this is one area where we will like the government to look at,” Sinha said.
Also on the anvil is an overhaul of the existing norm for initial public offers, said Sinha. “We are reviewing the entire IPO process: the quota for various categories of people, whether brokers can participate in the process and the role of merchant bankers, among others. And we are benchmarking ourselves to global practices on this.”
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