| Change in definition of control in FDI policy to be prospective: Sharma |
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New Delhi, 13 May The Ministry of Commerce & Industry has clarified its stand to its finance counterpart — any change being contemplated by the latter in the definition of ' control and ownership' of an Indian company for foreign direct investment ( FDI) purposes has to be made " prospectively", so as to not to hit investments by Indian companies in their downstream businesses. Both ministries have locked horns on the definition of ' ownership and control' in Indian companies with foreign majority stakeholders. In 2011, the Cabinet put the issue to rest--- it had said investments by Indian companies in which foreign ownership was more than 50 per cent would be treated as foreign investment for downstream investment purposes. This definition was similar to what the Department of Industrial Policy and Promotion ( DIPP), under the commerce ministry, had suggested in a discussion paper in 2011. For FDI across all sectors, the finance ministry has finally decided to accept the definition of ' control and ownership' prescribed in the new Companies Bill, 2012. If the new definition is approved, Indian- owned and controlled companies that have more 51 per cent foreign shareholding can make downstream investments in sectors that have FDI caps, without the government's approval. It is expected Commerce, Industry and Textiles Minister Anand Sharma would discuss the issue with Finance Minister P Chidambaram by the end of this month. "From the time the Cabinet finalised the decision till now, there have been a few developments. The issue is which definition to adopt… We have made it very clear whatever changes take place would be done prospectively. They cannot change the existing definition now... because we have Indian companies that have entered into joint- ventures, partnerships… investments have come into India based on that definition. There is no question of revoking the Cabinet decision. The existing definition will continue to prevail with effect from March 2009 till the time the new decision comes into place," Anand Sharma told Business Standard. The Companies Bill has provided new definitions of a group company, the Foreign Exchange Management Act and the Foreign Trade Policy. The finance ministry and the Reserve Bank of India have sought clarity on the issue and want to align the definition of ' control' in the FDI policy with the proposed definition in the new Companies Bill to get more investments into the country. During his Budget speech, the finance minister had clarified he and his team would amend the definition of ' FDI' and ' FII (foreign institutional investment)' to remove ambiguity and to adhere to the international definition. The Companies Bill seeks to give more powers to foreign owners. It defines ' control' as the " right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner". According to the finance ministry, this would put to rest the imbroglio surrounding downstream investment by Indian companies. By changing the definition, Indian- owned but foreigncontrolled companies would be allowed to make investments in sectors that have caps on FDI. Currently, this is not allowed. For instance, if ICICI Bank, which has 77 per cent foreign ownership, decides to invest in the telecom sector, the 74 per cent FDI limit in the sector would be applicable. In February 2009, DIPP had issued Press Notes 2, 3 and 4, which stated companies with foreign investment of more than 51 per cent would be classified as foreign firms. However, ICICI Bank and HDFC Bank ( foreign stake in the two banks was 63 per cent and 74 per cent, respectively) maintained they were Indian banks. "They cannot change the existing definition now... because we have Indian companies that have entered into partnerships" ANAND SHARMA Commerce minister |
| Sebi forces key changes to Justdial IPO |
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Mumbai, 13 May The issue size for the coming initial public offering ( IPO) of search engine company Justdial could have been just 10 per cent of the paid- up share capital instead of 25 per cent, but for a nudge by the Securities and Exchange Board of India ( Sebi). This, along with several other recommendations by the market watchdog, led to the dimensions of the offering being different from what its promoters had envisaged. When Justdial filed its offer document last year, it intended to sell shares amounting to just 10 per cent of the fully diluted paidup equity share capital — it was looking for valuations of more than ₹ 4,000 crore. According to rule 19 (2) ( b) of the Sebi ICDR ( Issue of Capital and Disclosure Requirements) Regulations, during an IPO, a company has to allot at least 25 per cent of its shares to the public. However, there is an exemption. If the post- issue capital of the company, at the issue price, is more than ₹ 4,000 crore, the company is allowed to go public with 10 per cent public shareholding. Subsequently, it is given three years to comply with the 25 per cent public shareholding requirement. According to a source, Sebi wasn't convinced with the valuation Justdial had sought, a valuation that would have given the company market capitalisation of more than ₹ 4,000 crore. To convince Sebi, the bankers had to lower the valuation, which forced it to sell 25 per cent, instead of just 10 per cent, as envisaged earlier. Though it is beyond Sebi's mandate to decide IPO pricing, the regulator wanted to ensure the pricing was fair, the source said, adding the company's promoters were asked to provide a ' safety net' feature for retail investors. While it was included in the red herring prospectus, the draft offer document filed by Justdial had no safety net feature. "As the company is from a new sector, Sebi asked us to provide a safety net to safeguard the interest of retail investors," said an investment banker handling the issue. Under the voluntary ' safety net' option, a company has to refund investors if the market price falls below the issue price 60 days after listing. Citibank and Morgan Stanley are the lead managers handling the Justdial offering. The company has priced the IPO in a price band of ₹ 470 and ₹ 543 a share. At the upper end of the price band, Justdial would raise ₹ 950 crore by selling about 17.5 million shares to the public. The entire offering would be secondary, with promoter VS S Mani and existing investors, including SAIF Partners, Tiger Global, Sequoia Capital and SAP Ventures, selling part of their holdings. VS S Mani, founder and chief executive, Justdial, said, " We intended to sell just 10 per cent in the IPO, but according to a Sebi rule, the promoter has to sell about 25 per cent." As Justdial's profitability track record isn't on the lines of that laid down by Sebi, its IPO had to be institutional investorbacked. Private equity- backed Justdial has 75 per cent reservations for qualified institutional buyers ( QIBs), 15 per cent for nigh net worth individuals (HNIs) and just 10 per cent for retail investors. Usually, half the IPO is reserved for QIBs, 15 per cent for HNIs and 35 per cent for retail investors. Scaled- down valuations force company to sell 25%, instead of 10% WHEN SEBI JUST DIALED |Justdial intended to sell 10% in IPO |Was seeking valuations of about ₹ 4, 000 cr |Sebi questioned the bankers on valuations |Rule forces Justdial to sell 25% instead of 10% |Sebi also asks promoters to provide ' safety net' option |IPO is 75% QIBbacked based on profitability criteria |
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