Market regulator Sebi in Month of June 2013 notified a new set of regulations to regulate issuing and listing of non-convertible preference
The listing of preference shares is basically meant to bring more transparency in raising of funds through such securities. The listing of privately placed non-convertible redeemable preference shares would require a minimum application size of 10 lakh Rupees for each investor which will safeguard the interest of small investors from high risk securities.
The definite structure for issuance and listing of such shares is supposed to make it easier for banks and infrastructure companies to gain funds through this route.
There is also a requirement of minimum three year term for the instruments of share besides public issuance of it and also a rating of AA- or equivalent investment grade.
The new regulations is applicable to issuing by banks of non-equity instruments such as 'Perpetual Non-Cumulative Preference Shares' and 'Innovative Perpetual Debt Instruments', which are in according with the specified criteria for inclusion in Additional Tier I Capital.
What is Preference Shares?
Preference share is an equity security which has the properties of both equity and a debt instrument. Preference share usually carries no voting rights but sometimes it may carry a dividend.
There would be a comprehensive regulatory framework as per the new norm for the public issuance of non-convertible redeemable shares also for listing of privately placed redeemable preference shares.
It is important here to note that in the last three years, Indian companies have raised over 25000 crore rupees through preference share issuance.