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Regulator probes pricing, trading of IPOs

Regulator probes pricing, trading of IPOs
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First Published: Thu, Dec 08 2011. 08 00 PM IST

Updated: Thu, Dec 29 2011. 01 21 AM IST
Mumbai: India’s capital market regulator is investigating initial public offerings (IPOs) where the shares of companies have shown sharp movements shortly after their listing on the bourses. It will pass an order on this shortly, two persons familiar with the probe told Mint.
After analysing the trading pattern of such stocks, the Securities and Exchange Board of India (Sebi) conducted a probe into the operations of the companies, and questioned the merchant bankers and brokers involved in the listing process and trading of shares.
An email sent to Sebi remained unanswered.
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“There are various issues. Sebi is uncomfortable with the wild swings of some of the stocks after listing. The examination is on,” one of the two persons said.
Both the persons declined to be named as the matter is sensitive and involves regulatory action against companies at fault.
Since January, at least 37 companies have listed their shares on stock exchanges through IPOs. While the Sensex, the BSE’s benchmark equity index, has shed 19.6% this year, the exchange’s IPO index has fallen 27%.
Mint research shows that of the 37 new stocks, a few have surged defying the overall market trend while some have plunged, out of sync with price movements of their peer group firms.
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tocks of 27 newly listed firms are trading below their offer price, and of these, 10 are trading 80% lower. Four have seen such sharp value erosion in eight weeks of trading or even less.
Stocks of Taksheel Solutions Ltd and RDB Rasayans Ltd are trading at at least 90% below the offer price. Both listed in October. Taksheel shares, which were offered at Rs 150 each in the IPO, are now available at Rs 16.10. Similarly, shares of RDB, which were bought by investors at Rs 79 each in the IPO, are now available at Rs 7.51.
Four stocks—Onelife Capital Advisors Ltd, Rushil Decor Ltd, Aanjaneya Lifecare Ltd and Lovable Lingerie Ltd—are trading 80% above their offer price, in a weak market.
Sebi is looking into the movements of both sets of stocks. Theoretically, a stock can lose value sharply if it is overpriced, while concerted buying by a group can prop up a relatively weaker stock. There is no indication that any such activity is associated with the stocks that have risen or fallen sharply.
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According to an executive with a domestic investment bank, the probe involves around a dozen investment banks involved in listing of firms.
“Investigations are on and we wouldn’t want to comment on anything yet,” a senior official from Almondz Global Securities Ltd said in a phone interview. He refused to be named. Almondz has handled four IPOs this year.
“We have done a couple of IPOs this year and both are doing fine. We haven’t received any letter from Sebi, but we know the regulator is questioning merchant bankers to understand poor share price performance of some firms after IPOs,” said the managing director of a domestic investment bank.
“A radically positive movement in stocks may indicate certain undesirable transactions by a group of brokers to jack up share prices. A disproportionate downward movement raises questions on the pricing rationale followed by the merchant bankers during the IPO,” said the second person with direct knowledge of the Sebi probe.
Both trends diverge widely from normal market movements of stocks that make up the BSE-500, which accounts for around 94% of the total market capitalization. Mint research shows that in terms of year-to-date trading pattern on BSE, only nine stocks are trading 80% below their year-opening levels and only three are trading 80% above their year-opening prices.
Seven newly listed firms are a part of the BSE-500 but they are not included in this research.
Sebi has taken several measures recently to protect investors and reducing the chances of losing money in IPOs. It also introduced some norms in July to enhance transparency in public issues, and disclosures made by issuer companies and their bankers during the float.
Under these norms, issuer companies are required to disclose company/project-specific information and highlight materially relevant disclosures such as peer comparison of important financial ratios and risk factors.
The merchant bankers handling public floats are required to maintain and disclose their track records regarding due diligence of issue management, takeover, buy-back and de-listing of securities.
Sebi has also revised the structure, design, format, contents, and order of information of public issue application forms and prospectus to ensure that all such price-related information is provided in a logical and user-friendly manner to aid the investor in making his investment decision.
anirudh.l@livemint.com
Ravindra Sonavane contributed to this story.
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First Published: Thu, Dec 08 2011. 08 00 PM IST
More Topics: SEBI | IPO | 2011 | Merchant Banks | Markets |