IPOs: Why SEBI initiatives may be futile?

Business

oi-Sunil

By Sunil Fernandes

Updated: Monday, August 20, 2012, 9:44 [IST]

Sample this: in 1995-96 there were 1,426 initial public offerings (IPOs), making it as many as 118 IPOs in a month on an average. In 2011-2012 IPOs were down to a trickle - in fact, just 34 IPOs in the full year.

Excessive pricing by greedy promoters has resulted in small retail investors suffering huge losses in IPOs. The result is that small investors have lost money even in renowned IPOs like L&T Finance Holdings which is traded way below its offer price.

Clearly, the latest initiatives of the the Securities and Exchange Board of India (SEBI) is going to do very little to revive sentiments, as small investors have burned their fingers in the past.

According to a PTI report market regulator Sebi will consider next month providing capital protection to part of investments made by very small investors in IPOs (initial public offers), although the move is being opposed by investment bankers and certain other sections of the industry.

This is a ridiculous move by SEBI, clearly defying the major attribute of an "equity", which is risk. In fact, promoters might be reluctant to offer such a "safety net" which would further dry up issues in the primary market.

In fact, SEBI should intervene in aggressive pricing, which would go a long way in helping the primary markets.

Among a more recent measure, is that the companies would have to disclose the price band at least five days before the opening of the offer period, as against the current provision of two days. Small investors certainly do not need the extra three days to analyse an Initial Public Offers (IPO), since there are only one or two IPOs in a month and sometimes none.

With an aim to safeguard investors' interest in Initial Public Offers, Sebi said it will put in place additional mechanism for monitoring the usage of funds and the companies would not be allowed to utilise over more 25 percent of proceeds for 'general corporate purposes'.
This is of course a welcome measure from SEBI and would help improve monitoring and avoid siphoning of funds.

Overall, the SEBI measures are unlikely to provide a great deal of comfort. In fact, over the last few years, the IPO market is non existent with very few retail subscribers. It's going to be a herculean effort for SEBI to revive the primary market and a few cosmetic measures might not help.

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