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Business News/ Opinion / Online-views/  Primary market to get investor-friendly
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Primary market to get investor-friendly

Primary market to get investor-friendly

Prithvi Haldea founder, chairman and managing director, Prime DatabasePremium

Prithvi Haldea founder, chairman and managing director, Prime Database

In order to revive investor interest in initial public offers (IPOs), the Securities and Exchange Board of India (Sebi) on 16 August announced reforms pertaining to the primary market.

Broker networks selling IPOs will be made available across 1,000 locations, where investors will be able to apply in both physical and electronic formats. Further, in order to reduce the time taken between issue closure and listing, banks providing application supported by blocked amounts will now extend the facility to all its branches in a phased manner.

For retail investors

Allotment guaranteed: The move that is likely to benefit retail investors the most is allotment. The regulator has decided: “The share allotment system will be modified to ensure that every retail applicant, irrespective of his application size, gets allotted a minimum bid lot, subject to availability of shares in aggregate." Earlier, in case of oversubscription, the applicants for smaller quantities used to get left out. But now retail investors will get a minimum bid lot, irrespective of the application size. The system will distribute a minimum lot of shares among all retail investors, subject to availability, and distribute the rest depending on application size. Says Gesu Kaushal, executive director, Kotak Investment Banking: “It is a positive and timely move. Currently, the environment is challenging, but as markets improve, these measures will help."

Prithvi Haldea founder, chairman and managing director, Prime Database

Institutional investors can’t withdraw:Non-retail investors will not be allowed to withdraw or lower their bid during the issue. This is to ensure that retail investors do not get misled by oversubscription in the institutional part, which can be withdrawn at a later stage.

Says Prithvi Haldea, founder, chairman and managing director, Prime Database, a primary market tracker: “This is the most positive outcome. Now the signal from QIB (qualified institutional buyers) subscription will serve the intended purpose."

Price band disclosure: Companies approaching the primary market will have to announce the price band along with relevant financial details at least five working days in advance against the current provision of two days. This will give retail investors time to understand the issue in relation to price.

For promoters

In order to facilitate compliance with Securities Contracts (Regulation) Rules, promoters have been given additional options of rights issues and bonus issues to achieve minimum public shareholding. This is in addition to follow-on public offer (FPO) and qualified institutional placement (QIP). Promoters of listed companies argued earlier that due to poor market condition, they were not able to sell shares under FPOs and QIPs. Says Jagannadham Thunuguntla, strategist and head of research, SMC Global Securities Ltd: “Sebi has given a market neutral option."

Though the rights issue may help, it is not clear why promoters will go for non-promoter bonus issues, which will affect the value of their holding. In case of FPOs and rights issues, the free float market capitalization requirement has been reduced to 3,000 crore from 5,000 crore to facilitate issues through the fast track route.

rajesh.kumar1@livemint.com

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Published: 20 Aug 2012, 01:17 AM IST
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