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‘At last,clean signals of real QIB participation will be available’

The host of reforms announced by Sebi to revitalise the markets have far-reaching implications for investors and the market

Written by Ritu Kant Ojha |
August 18, 2012 1:37:41 am

The host of reforms announced by Sebi to revitalise the markets have far-reaching implications for investors and the market,says Prithvi Haldea,chairman and managing director of Prime Database in an interview with Ritu Kant Ojha. Excerpts:

Will e-IPO ease the process of IPO application for investors? e-IPO will allow every single terminal of brokers of NSE and BSE,and at some point the MCX,to accept IPO applications. Not many IPOs are happening presently,but this is a far-reaching reform for tomorrow. For large IPOs,e-IPO will be a big boon in reaching out to potential investor.

Qualified Institutional Buyers will not be allowed to revise their bids downwards. Why?

There has been a spate of malpractices over the last 10 years while showing high levels of QIB subscriptions in IPOs. QIBs are not allowed to withdraw their bids but they are allowed to revise it. Cases were found where QIBs would put in a large application,say of five crore shares,on day one,giving retail a picture of confidence,and at the last moment on the issue closing day,the bid would be revised to say just 100 shares. By that time,retail would have already been trapped. Sebi has now mandated that revision would be allowed but only upwards.

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At last,clean signals would be available to the retail about the extent of real QIB participation.

Profit of Rs 15 crore in 3 out of 5 years has been prescribed for IPO companies. What does this mean for the investors?

Presently,a profitable company,could use the profitability route and was not required to have QIBs subscribing to at least 50 per cent of its issue,with the result that retail was often lured into such issues. Sebi has now prescribed a Rs 15 crore profit in three out of five preceding years. For loss-making companies,it will now be mandatory to have 75 per cent of the issue to be subscribed by QIBs. This will not expose the retail to dubious firms.

Why has Sebi introduced additional routes of Rights and Bonus Issue for dilution of promoter’s stake?

There are many companies which want to reward their shareholders. These two provide additional options for such companies. In a rights issue,shareholders get shares at a price lower than the market price while in a bonus issue they get shares for free. This is a very investor-friendly measure. This is also a signal from Sebi that it is serious about the June 2013 deadline for achieving 25 per cent dilution.

Sebi has decided to cap capital raised under GCP at 25 per cent. How will it help?

Issue Funds utilisation has been a major concern for a long time. Mapping these against issue objects becomes impossible in the case of monies raised for GCP. There has been an increasing incidence of companies raising money for GCP and some times the amount for GCP is as high as 50 per cent of the issue size. Moreover,GCP monies were being used for dubious purposes. This has now been capped at 25 per cent.

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