Mumbai, May 8: The market regulator today took note of the increasing number of Indian companies rushing to the overseas market to raise capital through the GDR and FCCB route and allowed listed companies to raise funds from domestic markets through an alternative mechanism.

The Sebi (disclosure and investor protection) guidelines, 2000 has been amended to introduce an additional mode for listed companies to raise funds from the domestic market in the form of qualified institutions placement (QIP).

“This will surely see a decrease in the number of GDR and FCCB issues by Indian companies because of the benefits it will bring them,” said Prithvi Haldea of Prime Database.

According to him, companies prefer the GDR and FCCB route as it is a low-cost yet speedy process of raising funds. The issues do not have any lock-in period either. Moreover, companies that wanted local branding and were concerned about the lack of depth in the Indian markets preferred to raise funds overseas.

“However, the new guidelines address all the issues except local branding. The established depth in the domestic markets make the local issues more lucrative,” added Haldea.

According to the guidelines, a company whose shares are listed on a national stock exchange, and which complies with the prescribed requirements of minimum public shareholding, is eligible to raise funds from the domestic market by placing securities with qualified institutional buyers (QIBs).

Securities used for QIP shall be equity shares or any securities other than warrants, which are convertible into or exchangeable with equity shares. Such conversion or exchange has to be done within sixty months from the date of allotment.

The Securities and Exchange Board of India (Sebi) had drafted the framework for an efficient domestic alternative mechanism for the GDR and FCCB route in January and had invited public comments on the same.

The issue shall be in the form of a private placement and be made only to QIBs, who shall not be the promoters or related to the promoters, either directly or indirectly. Also, a minimum of 10 per cent of such an issue shall be allotted to mutual funds.

The aggregate fund that can be raised through QIPs in a single financial year shall not exceed five times of the net worth of the issuer at the end of its previous financial year.

There has to be a minimum of two investors for an issue of up to Rs 250 crore and at least five allottees for an issue size of above Rs 250 crore. Also, no single investor shall be allotted in excess of 50 per cent of the issue size.

While the guidelines prevent the QIBs from selling the securities within a year, they are, however, allowed to do so on a stock exchange.

The pricing of the issue shall be made at a level not less than the higher of the average of the weekly high and low of the shares’ closing prices during the last six months or the same for a specified period. The price shall also be subject to adjustment in case of corporate actions such as stock splits, rights issue, bonus issue and others.

The issuer is not required to file the placement document containing all the relevant and material disclosures with the Sebi. The document will be placed on the websites of the bourses.

However, the QIP shall be managed by a Sebi registered merchant banker, who shall exercise due diligence and furnish a due diligence certificate to the stock exchanges.

The merchant banker shall also file a copy of the placement document and post-issue details with Sebi within thirty days of the allotment, for record purpose.

The resolution approving the placement will remain valid for a period of twelve months from the date of passing of the resolution and there should be a gap of at least six months between each placement in case of multiple placements.