Legal practitioners and in-house counsel share some of their predictions for the year ahead

Bhavna Thakur, director, capital markets origination equities, Citigroup Global Markets India: For the Indian economy and capital markets, 2012 has been roller-coaster ride. The year started off on a positive note, but markets soon lost steam amid the eurozone debt crisis and potential sovereign rating downgrade for India. Sentiments saw a reversal in September following a slew of reforms announced by the government and increased liquidity due to quantitative easing by major economies.

The pipeline of equity issuances continues to build and many quality issuers will be looking to raise growth capital by opportunistically tapping the markets in the first half of 2013. Another development to watch out for is the fast approaching June deadline set by the Securities and Exchange Board of India for companies to comply with the minimum public shareholding guideline. We should see several domestic companies as well as multinationals take the offer for sale (OFS) or institutional private placement route to achieve compliance. (For more on this topic see page 39.)

The new Companies Bill that was recently passed by the Lok Sabha has a few interesting implications for the capital markets. The bill enables public companies to make a private placement to not more than 50 persons, excluding qualified institutional buyers and employees of the company, implying that qualified institutional placements may not be restricted to only 49 investors. This is a big positive since it will not only enable more investors to participate in the offering but also enable foreign institutions to participate through multiple sub-accounts, which was previously highly restricted as each sub-account was considered a different investor.

The bill however leaves the new OFS product in a grey area. An OFS is neither classified as a private placement (since there is no restriction on the number of investors and it is done after a public announcement) nor as an offer to the public, since it does not require a prospectus to be filed. We expect the regulator and the government to come up with clarifications regarding the treatment of an OFS.

Another interesting aspect of the bill is that it increases the disclosure and corporate governance requirements for companies. Any company that files a draft red herring prospectus after the passing of the bill will need to comply with new requirements prescribed by the bill, such as having a board where at least one-third of the directors are independent. A company will also be required to to provide dissenting shareholders with an exit opportunity in case it changes the terms of the prospectus or objects of the issue.

India’s increased disclosure requirements come at a time when other countries are making it easier for companies to be listed, for example, through the JOBS Act in the US. With tighter disclosure and compliance norms in India, would Indian companies look elsewhere to list?

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