[aaykarbhavan] Business standard news updates 26-6-2013

Buybacks made tougher, FII investment route eased

BS REPORTER Mumbai, 25 June The Securities and Exchange Board of India ( Sebi), at a board meeting today, tightened share buyback rules to discourage companies from announcing frivolous offers. Also, to simplify the process for foreign investors to bring money into the country, the market regulator approved some key changes to foreign investment routes. Sebi has made it mandatory for companies to buy back at least 50 per cent of the proposed offer size — a penalty of 2.5 per cent will be charged on companies failing to do so. Besides, companies will have to keep 25 per cent of the buyback amount in a separate escrow account and complete their share buybacks within six months, compared with one year earlier. It has been decided that there will be a one- year cooling- off period between two buybacks and companies will not be allowed to carry out any fundraising during this period. Experts said Sebi's steps were investor- friendly and would discourage companies using buybacks as a measure to support their share prices. " Companies can no longer afford to announce frivolous buyback offers, as they stand to lose 2.5 per cent of the buyback amount. The reduced timeframe will reduce market manipulations," said Shriram Subramanian, founder and MD, InGovern Research. Amit Tandon, founder and MD of IIAS, said: " Some companies, without any serious intention, made buyback announcements only to boost their share prices. Now, as there will be a cost associated, they will be discouraged from making unserious announcements." Sebi also accepted the key recommendations of the Chandrasekhar panel on foreign investment route rationalisation. These included fewer routes for FIIs and simpler registration and KYC processes. The move has come at a time when foreign investors are pulling out of both debt and equity markets, adding to the current account deficit problem. Experts said the move to simplify FII routes was a step in the right direction and might help improve foreign investor sentiment. Turn to Page 20 > New buyback norms welcomed BS REPORTER Mumbai, 25 June The tighter share buyback norms would help ensure only companies with clean intentions come to the market, said experts. The Securities and Exchange Board of India ( Sebi) has increased the compulsory buyback amount from 25 per cent of the offer size to 50 per cent and reduced the buyback time frame from 12 months to six months. It has also asked companies to keep 25 per cent of the buyback offer money in an escrow account. And, 2.5 per cent of this offer money will be forfeited for failing to buy at least 50 per cent of what was announced. The overhaul was done after it came to Sebis notice that some companies made buyback announcements but didnt buy a single share from the market. The announcement was done only to boost share prices. "Sebi is ensuring greater commitment by companies which say they want to buy back shares. Now, companies will have to take a conscious call on whether they actually want to utilise their surplus cash for buybacks," said Sudhir Bassi, executive director, Khaitan & Co. Turn to TSI, Page 15 >         Sebi overhauls norms to discourage frivolous offers to shareholders THE SMART INVESTOR 14 > >Easier entry, faster registration for foreign institutional investors >New buyback norms welcomed TIGHTER GRIP Some ofSebi's keydecisions today Other announcements | MFs not allowed to appoint a custodian belonging to the same group clearing corporations 'angel funds' under AIFs |Single SRO for MF product distributors |Green signal for AMCs to become prop trading members in debt segment |Limited- purpose membership for MF distributors On buyback |Mandatory to buy back 50% of offer size; penalty of 2.5% on failing to do so |Buyback period reduced to six months from one year |Tender route compulsory if buyback size is over 15% of paid- up capital On FII routes |FIIs, sub- accounts & QFIs mergedinto a new class called the foreign portfolio investors |Direct registration of FIIs and sub- accounts with Sebi to be done away with On SME listing |Start- ups and SMEs allowedto list without IPO or fundraising |Separate ' institutional trading platform' for such companies only for informed investors |Minimum trading/

 

Getting a PAN set to be tougher as govt plans more stringent verification VRISHTI BENIWAL New Delhi, 25 June Getting a Permanent Account Number ( PAN) is going to get a bit tougher, with the incometax (I- T) department gearing up to make the verification process more stringent, after some cases of fraud came to its notice. Ration cards and rent receipts might no longer be accepted as proofs of identity and address. The tax department might also ask for proof of date of birth for issuing a PAN card. Instead of a rent receipt, a rent agreement along with proof of address of the owner would be accepted. Aadhaar number, gas connection documents, and a certificate issued by the employer in a prescribed format would be accepted as identity/ address proof after changes to the income tax rules are made shortly. The proposed move comes after the Economic Offences Wing found some foreign nationals, particularly from Afghanistan, were using fake PAN cards as proof of identity. In most of these cases, a fake certificate of identity and address signed by a Member of Parliament ( MP) was issued. Finance ministry officials said there were some gaps in the current process and the idea was to make the system foolproof and robust. A notification to this effect could be issued next week and the new rule would come into effect immediately after that. It will apply only to fresh applicants. According to rule 114 of the I- T rules, depository account statement, bank account statement /passbook, ration card, passport, voter identity card, driving licence, property tax assessment order and a certificate signed by an MP or a member of Legislative Assembly or a municipal councillor or a gazetted officer are accepted as proof of identity as well as address. "Currently, there is no prescribed format for the certificate issued by these authorities. Now, we will prescribe a format for PAN verification and issued of such certificates. It will be similar to the procedure followed in KYC ( know your customer)," said an official who did not wish to be identified. Currently, about 140 million people in India have PAN cards, while only 34 million of them file an income tax return. Many people who don't file tax return get PAN cards as they work as identity proof at many places. About 1.3- 1.4 million new PAN cards are issued every year by the tax department and the details of just 0.2 per cent of applicants ( 200 per 100,000) are verified by the I- T department. According to officials, in most cases of fraud, people furnished fake bank accounts, ration cards or certificates issued by gazette officers. In March 2011, after finding ahuge mismatch between the number of PAN holders and the number of tax return filings, the comptroller and auditor general had asked the I- T department to ensure that a single taxpayer was not issued multiple cards. As part of the government's drive against fake PAN, in order to verify the genuineness of KYC documents, third- party field verification is conducted after allotment of PAN. Of the total PAN allotments, 96 per cent are under the category of individual applicants and a large number of fake PANs are also observed under this category. For uniquely identifying the PAN allotted and to overcome the problems of fake PANs, issue of more than one PAN to an individual and to clean up the PAN database duplicates, capturing of Aadhaar in revised PAN application form 49A has been started on a voluntary basis. About 304,452 unique Aadhaar numbers have been seeded/ incorporated into the PAN database. BOGUS PAN Before ' 09- 10 ' 10- 11 ' 11- 12 ' 12- 13 Apr 1, ' 09 136 37 56 100 180 Total 509 Number of cases marked fake Source: Ministry of Finance Ministry officials say there are gaps in the current process and the idea is to make the system foolproof Easier entry, faster registration for foreign institutions BS REPORTER Mumbai, 25 June Foreign institutional investors ( FIIs) will now be able to enter Indian markets faster and register themselves more quickly with the regulator accepting the recommendations of the Chandrasekhar committee report. While the time required for registration is supposed to be a week or less, the need for documentation can push it to over six months, according to those in the know. The new norms are expected to significantly reduce the time required to do so. The Securities and Exchange Board of India ( Sebi) has given its nod to the suggestions of the committee, which include lower Know Your Client ( KYC) requirements for entities backed by governments and doing away with the need for registration with the regulator, according to a press release following aboard meeting today. Sebi has said FIIs, subaccounts and qualified foreign investors ( QFIs) are to be merged into a new investor class to be termed " foreign portfolio investors" ( FPIs). Neither FIIs nor their sub- accounts will require prior registration with the regulator. Instead, they would register themselves directly with designated depository participants ( DDPs). The regulator has also adopted a risk- based approach to KYC, dividing it into three categories on the basis of perceived risk. The first will cover organisations backed by the government, such as sovereign wealth fund. The second will cover regulated entities such as foreign mutual funds, while all other entities would fall in the third category. Also, it has clearly defined foreign direct investment as any investment exceeds 10 per cent stake in the company. Richie Sancheti, senior associate at Nishith Desai Associates, indicated the move would do much towards rationalisation of foreign inflows. "The move to harmonise and streamline the KYC norms will ease the process of entry of foreign portfolio investors into India. Sovereign wealth funds and institutional investors can invest more easily on a disintermediated basis. While the complete committee report is awaited, the earlier press release did clarify that other investors that get categorised under category III portfolio investors on the basis of risk weightage, may not be permitted to issue participatory notes," he said. Yogesh Chande, consultant, Economic Laws Practice, suggested entities already registered might have some leeway. "It will be good to see how existing FII and FII sub- accounts would glide into the new regime. My sense is, perhaps they will be automatically grandfathered. The risk basedapproach to KYC is a welcome move," he said. Other recommendations would likely require a move from the government, according to the Sebi statement. Sebi accepts Chandrasekhar panel recommendations, including easier KYC norms for entities backed by govts and doing away with the need for registration with the regulator The current FII investment structure is very complicated. Life should be made simple for investors. Both the domestic and foreign investors should have a level playing field, with easy entry and exit rules. MS SAHOO, Secretary, ICSI Some corporates just made buyback announcements to rig up the share prices and had no serious intentions. Now as there will be acost associated, it will encourage only serious players. AMIT TANDON, Founder & MD, IIAS No longer can companies afford to announce frivolous buyback offers, as they stand to forfeit 2.5% of the buyback amount. The months, will reduce market manipulations. SHRIRAM SUBRAMANIAN, Founder & MD, InGovern Research EXPERT TAKES NEW ROAD |FIIs, sub- accounts and QFIs merged into " foreign portfolio investors" route |Foreign institutions to register with Designated Depository Participants instead of Sebi |Risk- based approach to KYC |All investments above 10 per cent stake in the company to be termed FDI

 

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CS A  RENGARAJAN,, B.Com ,FCS, LLB, PGDBM
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