Firms misuse book-building

MUMBAI, FEBRUARY 13: Companies have started taking advantage of the book-building route. Not only are they denying a major chunk of shares...

MUMBAI, FEBRUARY 13: Companies have started taking advantage of the book-building route. Not only are they denying a major chunk of shares to small investors, some of the companies have now started overpricing their IPOs initial public offerings.

Cinevista Communications8217; IPO through the book-building route was oversubscribed by 90 times. However, the company jacked up the issue price by 50 per cent to Rs 300 per share from the earlier indicative price of Rs 175 to Rs 200. 8220;This means the company has mobilised more funds than necessary. Who will monitor the end use of funds? Why did the company raise the offer price in the last minute?8221; said an analyst.

8220;Many companies issued high premium shares in the 1994-96 period, but most of them are now quoting below the par value. Some of them have even vanished from the scene. Now the primary market has started picking up. SEBI should not allow companies to take advantage of the situation as like the 1994 IPO boom. The regulator should take strict and immediate action,8221; he said.

To top this, small investors are being pushed back giving a lesser role in the book-building IPOs. In the case of Cinevista, out of 25.33 lakh shares, as much as 75 per cent 19 lakh shares was allotted to big investors including big FIIs, mutual funds and banks.

Take the example of Cadila Healthcare. This company is also offering 90 per cent of the public issue 1.33 crore shares out of 1.48 crore shares to big investors through the book-building route. 8220;SEBI announced the book-building two years ago when the primary market was in bad shape. Now things have changed. Small investors who burnt their fingers in the 1994 IPO boom have started coming back,8221; said another analyst.

In the case of Hughes Software issue, 90 per cent of the IPO was through the book building method while the balance 10 per cent was by way of a fixed prices offer to individuals. In the book building component, only 15 per cent was reserved for small investors applying for less than 1,000 shares. This means only about one-fifth of the IPO was available to small individual investors as compared to 50 per cent in a normal public issue.

8220;Further, though the fixed price component was reserved for individual applicants, no maximum limit for the application size was prescribed. Thus, the situation was tailor-made for market operators to edge out small applications from retail investors through sheer financial muscle,8221; said an investor.

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SEBI, the market regulator, only recently decided to plug another loophole. Earlier in a book-building issue, the book running lead manager used to quot;look at the seriousness and long-term commitment of the investorquot; while finalising the allotment. However, lead managers used to allot shares to their clients and friends using this facility. Now SEBI has banned lead managers from participating in the bidding process.