The Securities and Exchange Commission has decided that convertible securities like preference shares, bonds and debentures would have to be issued as per the ‘repeat public offering’ guidelines.
The commission finalised the guidelines for the issuance of convertible securities on Tuesday as there was no distribution mechanism, price fixing method and information dissemination system for issuance such shares, said an official.
The move came amid widespread allegations that a handful of listed companies raised funds by artificially jacking up share prices during conversion of preference shares into ordinary shares at a certain discount rate.
As per the new guidelines, any company willing to issue preference shares or bonds will have to follow the RPO guidelines under Public Issues Rules 2006.
The company will have to appoint issue manager. It will have to reserve for the existing shareholders 40 per cent of the shares it wants to issue as preference shares, 40 per cent for initial public offering and 20 per cent for private placement.
The company will not be allowed to convert the preference shares into ordinary shares within two years.
The commission expects that the new system will bring transparency in issuing convertible securities.
So far seven companies have raised funds from the market by offering preference shares amid allegations that some of the companies have manipulated share prices to lure investors to buy the preference shares.
