A sudden steep rise in listing fee by BSE has taken aback the companies looking to migrate from regional stock exchanges (RSEs), and their shareholders.
Last week, BSE wrote to several companies that had already applied for direct listing, saying the processing fee for direct listing was revised with immediate effect to Rs 25 lakh. And, from January 1, further to Rs 50 lakh. In comparison, the processing fee of rivals Metropolitan Stock Exchange of India (MSEI) and National Stock Exchange (NSE) is Rs 3.5 lakh and Rs 1 lakh, respectively.
BSE gave the applicants an option — either pay the differential fee or withdraw the application and get a refund of what was already paid. Then came the killer. “The BSE should be in receipt of your request for withdrawal of application or payment of differential fee within two weeks of receipt of this intimation, failing which your application would be treated as closed and no request for refund of fees will be entertained,” stated a BSE letter dated December 7.
In an e-mail, responding to questions from this newspaper, a BSE spokesperson said they’d listed many more companies as compared to both rivals but had begun to have reservations about the quality of companies coming out of these regional bourses.
Of 244 such companies listed on BSE, eight have since been suspended and a little over half are under investigation. Approximately 30 per cent have issued preferential shares and a little over 15 per cent have seen their stock prices increase by about 500 per cent since their direct listing on BSE. The total market cap of these companies increased by Rs 4,930 crore.
“Given the heightened surveillance activities to avoid manipulative and tax avoidance practices using stock markets, Sebi (the Securities and Exchange Board of India) and other agencies have raised several questions on the lack of corporate governance in such companies. In view of the same, BSE has recently tightened its direct listing criterion, including increasing the initial listing fees, to avoid frivolous companies from listing and using (our) platform for price manipulation and tax avoidance schemes," the spokesperson added.
However, many professionals feel a increase in fee might not necessarily result in an improvement of quality and people coming with an intention to manipulate might be more prepared to pay it than the genuine ones. “If the (genuine) companies will not get listed, the ultimate sufferer will be the investors,” Anang Shandilya, a practising company secretary, said in a letter to the finance ministry.
BSE said it was also changing several other aspects of its framework, to avoid frivolous companies from coming on its board. And, to have better regulations to ensure their platform was not used for any sharp practices. These include price bands ranging from daily to annual and risk-based sub-segments.
Shandilya has sought the Ministry's intervention to roll back the fee raise, saying it had jumped 50 times from the Rs 1 lakh at the time Sebi issued its exit policy for RSEs. According to his letter, there are a little over 7,000 companies in 16 regional bourses.
Earlier this year, Sebi gave these companies 18 months to apply to any of the national exchanges for direct listing, failing which they are supposed to give direct exit options to shareholders. Ram Avtar Agarwal, 55, is a chartered accountant based in Agra. Due to the knowledge acquired through his profession, he has been investing in shares for nearly three decades. Agarwal said he owned shares of stocks listed in several RSEs and many of these were stuck. "Their principal investment value must be in Rs 10-12 lakh. These have been acquired over years. Their market value could be much more. But, since there is no trading, there is no price discovery," he said.
He points to shares of Jullundhar Auto, originally listed on the Delhi Stock Exchange. Though there was hardly any trading activity, Agarwal used to get offers for his shares at Rs 20 and 30. "I didn't sell because I was not sure of the price. Today, the shares are listed on a national exchange and are trading at around Rs 200 and I'm still holding on to these," he said. The rest of his portfolio has not been as lucky, as these have not been able to get to the big three bourses. S D Jain, a Delhi-based chartered accountant says sums of about Rs 1 crore belonging to a dozen of his clients are stuck.
According to Sebi guidance, companies may list on any of the three national bourses. However, due to more stringent criteria (minimum paid-up capital of Rs 10 crore), NSE listed only eight of these companies. While it did not comment, MSEI, youngest of the three bourses, said it had listed about 110 companies. Their spokesperson said, "Few of these companies have a good business track record as well as financial health. As these companies were listed at RSEs, there was no trading in the securities of these companies for a number of years. After getting exposure of a nationwide stock exchange, these companies have the potential to do better because of wider participation of investors."
BSE, which initially courted these companies, has listed 244 such. Anjali Aggarwal, partner, Capital Market and Stock Exchange Services, said: "For the purpose of direct listing, BSE has issued relaxed norms, mandating a minimum paid-up capital of Rs 1 crore and a net worth of Rs 3 crore. These relaxed norms are an investor-friendly move, making a large chunk of RSE-listed companies eligible for BSE direct listing." She suggested a slab system for fees based on a company's paid-up capital or net worth could help.