Time and again the Indian investor has faced disappointments when investing in Initial Public offerings (IPOs). Most of the time, the IPOs are overpriced. Investors do not get much of a benefit on listing day. To add to this many of the companies looking to raise money are run by dishonest promoters who do not have the best interest of shareholders in mind. On the other hand, corporates have long argued that the regulator's rules and procedures have prevented them from raising money in a simple manner.
The Securities and Exchange Board of India (SEBI) has made some efforts to bring about much needed transparency and simplicity in the primary markets but has not had much success. However the market regulator is certainly not relenting in this regard. As per an article in the Economic Times, SEBI is planning a series of measures to simplify fund raising for corporates through primary markets. Over the last few years, many corporates have found it easier to raise money abroad than in India and the regulator wants to change that.
SEBI is planning measures like electronic Initial Public Offerings (e-IPOs), higher limits for anchor investors, optional fully convertible debentures (OFCDs) as well as tax breaks for retail investors in IPOs. These measures are certainly welcome. E-IPOs will enable investors to apply for any IPO without filling out a form and without the help of a broker. Increasing the limit for anchor investors is also a positive move. At present, only 30% of the Qualified Institutional Buyer (QIB) portion of an IPO is reserved for anchor investors.
OFCDs have been under consideration for a while. If they were to become a reality then investors will have a choice to opt between the OFCD and the IPO. If investors think an IPO is over-priced then they can opt for the OFCD in its place. Here they will have the option of converting it into shares at a future date while receiving regular interest payments in the meantime.
All these measures are most welcome. However it remains to be seen if they will help to revive the primary market in India. Also the government may not be very forthcoming with tax breaks as its own finances are not in good order.
Investors have had a bad experience with IPOs in the past. Do you think SEBI can revive investor interest in IPOs? Share your views on the Equitymaster Club