Disclosure Issues Keep FPIs At Bay From HAL, Bharat Dynamics IPOs

Defence public sector undertakings Hindustan Aeronautics (HAL) and Bharat Dynamics (BDL) decision to withhold material information from public shareholders is the key reason for tepid demand for their shares, particularly from overseas investors.

Several institutional investors were left ineligible from investing in these companies as they fail to meet the disclosure norms. Several big-ticket foreign portfolio investors (FPIs) had to stay away from participating in these IPOs despite attractive prospects, say bankers.

Both the issuances failed to garner any applications from FPIs and barely scraped through with the support of state-owned institutional investors such as Life Insurance Corporation (LIC).

Any unlisted shares being issued to the US-based qualified institutional investors (QIBs) should either be registered with the US market regulator Securities and Exchange Commission (SEC) or will have to comply with the so-called “Rule 144A”of the Securities Act.

The rule allows non-US companies to sell unlisted shares to US-based institutions without registering with SEC. However, the law specifies some basic requirements including reporting standards that the companies have to meet in order to be eligible. In case of HAL and BDL, disclosures were not on par with the requirements of 144A. Read More…

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