In a move aimed at overhauling the IPO process, Sebi on Tuesday proposed a series of measures to monitor the utilisation of the issue proceeds.
The market regulator has proposed making it mandatory for all firms coming up with public issues to appoint a monitoring agency. The regulator has invited public comments till March 25 and has also sought to place the onus on the audit committee of the company and its management to give reasons for any deviation in the usage of such funds.
Currently, only public offerings of Rs 500 crore and above are subject to monitoring. Experts believe that the practice should extend to all issues and investors in all categories should be protected. “It is a move in the right direction as it will provide protection to all investors against misuse of IPO funds. If the regulator is worried about misuse, then all investors need to be protected,” said Prithvi Haldea, chairman, Prime Database.
During 1993-96, the IPO market was rife with activity and witnessed over 3,900 companies raising funds. Amid the IPO boom, there were numerous instances of promoters vanishing with the proceeds. “Earlier nobody took responsibility of companies running away with investors’ money but this move should provide some comfort to the investors,” said Haldea. Sebi has further proposed that the agency should submit its report on a quarterly basis, which must be made public through exchanges. “Considering that Companies Act, 2013, requires prior approval from shareholders for any change of object and a provision for exit to dissenting shareholders, it is very important that the shareholders get regular update on utilisation of proceeds,” said the paper.