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Journalism of Courage
Recent announcement made by Sebi on the Initial Public Offer (IPO) process reforms has the ability to transform the way our country understands IPOs currently. Many of the proposed changes have been there in the developed economies for some time and will lead to significantly higher efficiency and transparency. e-IPO or electronic IPO is one of the proposed change which will allow investors in 1,000 locations to apply for IPOs through broker terminals. This will have many advantages for the investors. Apart from the obvious reduction in turnaround time for forms to be received after submission,it will also ensure reduction in errors and lost in transit cases.
Voluminous paperwork which is inevitable in todays paper based system leads to significant risk of mistakes at various stages and is time consuming.
Second big change being spoken about is wider availability of applications supported by blocked amount or ASBA. While it has been around for a while,Sebi is now talking about eventually moving entire retail IPO investments through ASBA by making it available more widely. Currently cheque clearing takes time and IPO process has been designed keeping this in mind. Post allotment,funds need to be refunded back to investors in case of partial or non-allotment leading to investor funds lying locked for about 2 weeks. A wider usage of ASBA will allow IPO process to be shortened in terms of timelines as well as it ensures investor funds remain blocked only for a short duration.
Sebi is looking at significantly reducing the timeline for IPOs from 12 days currently. Retail IPO investment minimum ticket has been increased to R 10,000-15,000 from R 5,000-7,000 earlier. This wont have a material impact. However,IPOs will have to,going forward,mandatorily allot share to each retail investor except in cases which are oversubscribed beyond 20 times.
Sebi is also looking at making availability of information to retail investors more effective. It is looking at making changes in the information provided in IPO prospectus and forms. Currently lot of information is provided but simple things that retail investors look for are not readily identifiable in the volumes of information provided. Sebi wants to make these documents friendlier to the retail investors. The price band for IPOs will have to be announced 5 days prior to the IPO from 2 days currently. This will give retail investors more time to take an informed call.
Another step being taken is to streamline the know your customer (KYC) process as well as the demat account opening process. Currently customer ends up submitting separate KYC for various types of investments and account opening. Sebi wants to integrate these so that once KYC is submitted by an investor he doesnt need to duplicate it for various other products. These steps will also make it easier for a retail investor to invest in IPOs.
Sebi has indicated various other steps which will make post IPO pricing more robust. It will allow all companies now to dilute only 10 per cent stake compared to 25 per cent mandatory dilution earlier (subject to certain conditions being met). This was available only to ICE companies earlier. This will ensure post IPO prices are more stable. It has proposed to allow venture funds to exit beyond 1 year of listing without losing tax benefits. This will not only encourage venture funds as an industry but also give more stability to post listing pricing.
Overall,a wide range of investor friendly steps being proposed by the regulator,which should make IPOs more attractive for retail investors.
Author is CEO,Fullerton Securities & Wealth Advisors,India
