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Disclosure must every quarter for pvt placements

Subhomoy Bhattacharjee & Sidhartha

The government has decided to regulate the private placement market by mandating quarterly disclosure norms for all companies. The finance ministry is expected to issue a notification as part of its strategy to reform the capital markets.

The new norms will require firms to disclose all their private placement deals. Government sources said the disclosure norms would also apply to unlisted companies and be at the same level as those currently applicable for companies going through the public-offer route.

At present, even listed companies are not required to provide details of their private placement deals.

The announcement by the finance ministry will be followed by relevant notifications by the regulators concerned.

Confirming the development, Securities and Exchange Board of India chairman G N Bajpai told Business Standard that Sebi was examining the regulations on private placements.

Private placement involves companies issuing debt and equity instruments without routing them through the stock exchanges. This way, it is cheaper and faster for corporates to access funds.

According to Sebi figures, only Rs 1 billion was raised through the public offer route in 2000-01. The private placement option attracted business of over Rs 700 billion in the same year.

Officials said the norms were not aimed at disrupting the private placement market but at making the process more transparent.

Once it was standardised, it would not matter who regulated the area, they pointed out. The finance ministry claims there are international precedents for insisting on disclosure norms for unlisted companies.

The sources added there was a broad agreement between North Block, the Reserve Bank of India and Sebi that the disclosure norms should apply to all those who subscribe to such issues, including financial institutions and banks, as well as to companies offering them.

According to the ministry, along with the move to demutualise the stock exchanges and resolve the issue of broker turnover fees, a clarification on the scope of private placements would give a leg-up to the moribund capital markets.

The ministry also feels there is no need to amend the Companies Act to regulate the private placement market.

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