PRE-PREF ISSUE LOCK-IN TO GO Sebi to Make it Easier for Cos to Tap MF, FI Funds

    Market regulator Sebi plans to allow mutual funds and insurance firms to subscribe to preferential issues of companies even if they have traded the shares of the issuing corporates in the past six months, to boost liquidity in the markets and make it easier for firms to raise funds. Such transactions are currently banned, blocking a key source of funds for companies. "The removal of the pre-preferential issue lock-in norm for financial firms would help India Inc raise resources from the domestic market," said the head of a foreign investment bank. 

But this restriction will continue to be in place for promoters. A Sebi official said institutional investors such as mutual funds and insurance companies play an important role in ensuring liquidity in the secondary market. "It is felt that they should be differentiated from promoters while applying the lock-in relating to pre-preferential issue. This unduly restricts the trading ability of institutional investors," he said. 
This restriction was imposed in 2004 to prevent institutional investors and promoters from manipulating the price at which shares were issued through preferential allotments. A preferential allotment is done by issuing shares of a company to a select group of investors at a price that is not less than the average price of the last six weeks. The revised norms are likely to be announced at a Sebi board meeting on January 28 in Delhi. The board is also planning to change the guidelines for foreign currency convertible bonds (FCCBs) and optionally convertible debentures (OCDs), and disallow the holders of these instruments from subscribing to bonus and rights issues. 
At present, the issuing company makes a provision in its books for bonus or rights shares in proportion to the FCCB holder's entitlement and transfers them at the time of conversion. In addition, bondholders are allowed to lower their conversion price in proportion to the equity expansion through these two routes. 
According to Sebi, these provisions result in granting twin benefits to such instrument holders, and it plans to correct this situation by doing away with their entitlement for bonus and rights shares. 
What's on Anvil 
Insurance firms and mutual funds will be exempted from six-month lock-in prior to preferential allotment. However, the lock-in on shares allotted in preferential issue will continue 
The six-month prepreferential issue lock-in for promoters to stay FCCB and OCD holders will not be allowed to subscribe t o 
bonus and rights shares Compulsorily convertible 
debenture holders will continue to be eligible for bonus and right issues Market Report 
Nifty Clears 5k on FII Buying, Strong Results OUR BUREAU MUMBAI 
The Nifty closed above the psychological mark of 5000 for the first time in six weeks, mirroring the strength in Asian markets, on news the International Monetary Fund (IMF) was seeking to boost its resources to tackle the euro zone debt turmoil. Strong demand for French and Spanish debt auctions also alleviated investor concerns over the crisis. 
BSE Sensex advanced 1.17% to close at 16643.74, while Nifty rose 1.26% to close at 5018 – the first time since December 7. 
Strong third quarter results from private lender HDFC Bank and two wheeler makers – Bajaj Auto and Hero MotoCorp – contributed to the upbeat mood, boosted by foreign institutional buying to the tune of . 630 crore on Thursday. So far in 2012, these investors have pumped in over $1 billion (. 5,023 crore), compared with $385 million of net sales in the whole of 2011. 
Aviral Gupta, fund manager - equity, Indiabulls Mutual Fund, said, "We expect FII inflows to be maintained throughout the year. There is negligible shock value in the system. We expect things to improve on both global and domestic fronts going ahead." 
Reliance Industries will be keenly watched as its board meets on Friday to consider and approve a share buyback proposal. Its stock price extended Wednesday'sgains by around 1% to close at . 785 on Thursday. 
Yields declined in France's bond sale on Thursday, the country's first auction since Standard & Poor's downgrade of the country's AAA credit rating. Spain's longer-term debt has received strong response, with yields down more than 150 basis points from a previous sale of the same bonds in November, according to agency reports. 
"These results are bullish for both Spain and the broader periphery, and stand to further underpin the ongoing 'risk-on' tone," Richard McGuire, rate strategist at Rabobank, told Reuters. The FTSE Eurofirst 300 was up 0.8% and the Euro Stoxx 50 has risen 1.4% at the time of going to the press. In Asia, MSCI Asia Apex 50 rose 1.4%, with Hong Kong's Hang Seng Index closing up 1.3% and China's Shanghai Composite Index also gaining 1.3%. 
Investors will now turn their focus to RBI's rate-setting meeting next Tuesday. While the central bank is more likely to keep the rates steady, investors are on the lookout for RBI's outlook on inflation and interest rates. "The RBI will most likely adopt a 'wait and watch' approach. The opinion on a possible CRR cut is divided," says Amar Ambani, research head, IIFL. "Much of the recent moderation in inflation is due to a combination of improved supplies and a high base, while the core manufacturing inflation remains sticky. There is a likelihood that food inflation might turn back up as the base effect starts to wear off," he said.