Sebi Chief Says Will Address Issue of Exorbitant Valuation of IPOs

On Saturday, November 25th, Sebi chief Madhabi Puri Buch addressed the issue of exorbitant valuation of initial public offerings (IPOs) during a slew of share sales hitting the capital market. This week, five companies, including Tata Technologies, raised a record Rs 2.6 lakh crore in application amount through their IPOs.

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Sebi to Address High Premiums for Some Shares in IPOs

In response to a query about high premiums for some shares in IPOs, Buch stated that Sebi is fully aware of the concerns and recognizes that the justifications provided for high premia are often meaningless. She assured that the regulator will examine the issue and take appropriate actions.

Sebi Not Planning to Advise Issuers on IPO Timing

When asked if Sebi plans to advise issuers and other market makers to space out their issues in a more timely manner, Buch clarified that it is not the regulator's role to time the market. Sebi wants to leave the timing of issues to the market to ensure fairness, as a Sebi-mandated time may not be the best for both the issuer and investors. Companies should be allowed to come to the market to raise money when it is most suitable for them.

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Buch also expressed confidence in the institutional capacity of the market to handle the current rush of IPOs. She stated that Sebi is not concerned about the issue scrambling and that the system is performing well. No negative feedback has been received on this front thus far.

Sebi Rejects Green-Shoe Option for IPOs

In response to a query on whether Sebi will allow a green-shoe option, which is permitted in other market activities and gives the issuer the freedom to retain oversubscription to a considerably larger amount, Buch replied in the negative. She explained that while it is practically possible, conceptually it is not feasible. Unlike debt issues or other market instruments where there is no equity dilution, an IPO is precisely an equity issue. Allowing a green-shoe option would lead to an undesired dilution of equity, among other implications.

Sebi chief Madhabi Puri Buch's statements indicate that the regulator is taking the concerns over exorbitant IPO valuations seriously and is committed to addressing them. Sebi's focus on ensuring a fair and efficient IPO process is crucial for maintaining investor confidence and the overall health of the capital market.