SEBI tightens IPO norms
By Our Markets Bureau | 25 Jun 2003
New
Delhi: Securities and Exchange Board of India (SEBI)
has announced a slew of measures to bolster the primary
market and further encourage retail investor participation.
The measures, announced by SEBI chairman G N Bajpai, include shortening the maximum time span between the closure of an issue and its listing from 15 days to six days and reduction in mandatory allocation for qualified institutional buyers (QIB) in primary issues from 60 per cent to 50 per cent.
"Lowering QIB allocation will ensure availability of a relatively higher portion of the issue to retail investors," says Bajpai. Further, the definition of a 'retail investor' in the case of book-built issues has been changed in favour of the amount invested, instead of the number of shares applied for.
"Currently, investors applying for below 1,000 shares are considered as retail investors. Under the revised book-building guidelines, a retail investor is someone who invests up to Rs 50,000 in an issue. This will ensure that investors applying for, say, 800 or 900 shares will not corner a major chunk of allocations at the expense of those intending to buy 100 shares," says Bajpai.
The other investor-friendly measures announced by SEBI with regard to book-built issues are introduction of the concept of a 'movable price band' in place of the existing 'fixed floor price,' prohibition on withdrawal of bids by QIBs and also widening the definition of QIBs to include insurance companies registered with Insurance Regulatory and Development Authority (IRDA).
"These measures will make price discovery under the book-building process immune from artificial demand, so that the response to the issue is genuinely market-determined," says Bajpai. SEBI has also made the 'green-shoe' option in the issuance process mandatory. This will ensure that in the event of over-subscription, there is a mechanism for allotting extra shares, thereby curbing excessive post-listing price volatility of the newly issued shares.
SEBI
has also tightened norms for issuers "to keep fly-by-night
operators at bay." Firstly, wilful defaulters have
been barred from making debt issues. Secondly, issuers
will have to tie up means of finance prior to primary
issue to ensure financial closure of the project for which
public money is raised. Thirdly, it has introduced the
concept of 'net tangible asset' to ascertain a "minimum
tangible existence of the company seeking to access the
capital market."
