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Yet another SEBI crackdown
Thu, 28 Apr Pre-Open

A leading daily has come out with a rather gloomy statistic. It mentions how investors have lost a whopping Rs 36 bn in IPOs last year, excluding Coal India gains. Worse still, nearly 70% of the 51 IPOs fell below their offer price.

A sorry state of affairs indeed. Little wonder, market regulator SEBI has been jolted into action. It has summoned merchant bankers and has asked them to be stricter in their approach and also more realistic while deciding the price band of a company.

IPO is a vehicle for companies to raise long term capital on terms that are favorable to shareholders. It is also a medium for the promoters to cash in on the wealth created in the company and also let minority investors benefit from it. These are certainly noble intentions and are a win-win situation for all the parties involved. But most human beings are not predisposed towards such acts of altruism. If the system is vulnerable to abuse, then people will indeed start abusing it. And this is exactly what's happening to IPOs these days. Under the pretext of creating wealth for minority shareholders, wealth is being transferred from them to greedy promoters. And merchant bankers are happily playing along as a higher priced IPO means greater commission for them.

It is this practice that is disturbing SEBI immensely. And it has put the onus firmly on investment bankers. "What is the investment banker there for? He needs to advise promoters to leave something on the table... Some thoughts need to come out from within (the industry)... This is more like self-regulation," one of the SEBI executives is believed to have said. Furthermore, SEBI has also proposed that all merchant bankers should disclose track record of their past issues in the prospectus as well as the lead managers' website. The rule though is yet to be implemented.

Indeed, if there is one institution that has looked whole heartedly into the various interests of retail investors in recent years, it is indeed SEBI. We hope that the voice raised by the watchdog on IPO pricing gets translated into some sort of action. Some drilling of sense in the minds of merchant bankers and promoters is indeed urgently needed.

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Feb 23, 2018 09:59 AM