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Journalism of Courage
Market regulator Securities and Exchange Board of India (Sebi) has stepped in to increase the role of retail investors and mutual funds in the capital market.
In a far-reaching move to bring more transparency and fairness in bidding and allotment procedures in initial public offers (IPOs), Sebi has increased the quota to mutual funds and slapped restrictions on benefits currently enjoyed by big-time qualified institutional bidders (QIBs) like foreign funds, merchant bankers and institutions.
In another revolutionary step, Sebi has also asked companies to maintain a minimum level of public shareholding within two years. This will result in many companies — where public holding is marginal — offloading shares to the public in the near future. Addressing a news conference, Chairman M Damodaran said mutual funds have been given greater opportunity to take advantage of equity investment. Apart from the 5 pc reserved for mutual funds in the 50 per cent quota for QIBs, mutual funds have been allowed to bid for the remaining 45 per cent too.
As there is no change in the retail allotment, retail investors continue to apply for 35 per cent of the IPO and high networth investors (HNIs) can pick up the balance 15 per cent.
In a bid to stop QIBs — mostly FIIs, institutions and mutual funds — from manipulating oversubscription figures and the issue price of an IPO, Sebi has slapped a 10 per cent upfront margin on all bids made by them. ‘‘Earlier, QIBs were not paying any margin whereas retail investors were forced to pay up the full amount while bidding for shares,’’ Damodaran said.
The allotment process for QIBs has also been changed from discretionary method to proportionate basis, which is similar to that for retail investors. Earlier, the companies would, at their discretion, allot any amount of shares to any institutional investors without assigning any reason. There were widespread complaints about allotment under the previous regime.
Damodaran said the Sebi has decided to direct listed companies to maintain their public shareholding at the time of the listing and enhance it to 25 per cent (for regular companies) and 10 per cent (IT and telecom companies) respectively depending upon the criteria within two years.
The Sebi move follows the steep fall in public holding in many listed companies over the years. Promoters and FIIs have acquired sizeable stakes in listed companies, edging out retail investors in the recent market boom.
‘‘Those companies which fall short of these levels in two years’ time due to certain externalities like Corporate Debt Restructuring (CDR) will be given another one year’s time to comply with the new norms,’’ Sebi chief said.
