With the objective of boosting investor confidence in the primary market, SEBI has announced a few fresh measures for new Public Offer.
A look at the primary market measures:
1. Any unlisted company making an IPO will have to list in at least one of the stock exchanges having nationwide trading terminals – this means companies cannot call themselves being ‘listed’ by getting the company listed on any of the small regional exchanges. It would necessarily have to go for a listing on the NSE or BSE. This would also ensure that the companies, to get themselves listed on the NSE or BSE would have to comply with some strict norms and that ensures some amount of quality. Also, listing on any of these national exchanges would bring in more depth and give assurance of trading. There are so many stocks, which though listed, hardly ever gets traded and becomes a liability for the investor and for the stock exchange. And one more big advantage – it will ensure that terminals of NSE and BSE now reach all nook and crannies of the country thus ensuring ‘national’ participation. This will provide a liquid trading platform to investors in securities of the company.
2. The biggest move is the ushering in of the concept of an ‘anchor investor’. In CB Bhave’s words, “The concept will work like this. The anchor investor will have to be a QIB, what we call the Qualified Institutional Buyer. He can get up to 30% of the quota that is reserved for a QIB. In effect, about 15% of the issue can be given to the anchor investor.”
3. As per the guidelines, anchor investors will apply for the shares a day before the subscription opens for other investors. They will pay 25% of the purchase price when placing the order and the remaining 75% within two days after the IPO has closed. There will be a firm allotment to this anchor investor and therefore there will be a lock-in of 30 days after the issue gets listed. No person related to the promoter, promoter group or the book running lead managers will be allowed to apply as an anchor investor. This is a good move as it brings a certainty to the issue and would help the promoters of the IPO create demand for their shares and get a better price.
4. SEBI has also tinkered with some norms in the rights issue. It has barred companies from issuing shares with superior voting rights. One of the representations from the market was that the disclosure documents for rights issues tends to be extremely bulky because it is treated like a public issue, whereas that company is already listed and has continuing disclosure requirements. Investors know not only the price of the shares but also know the continuing disclosures. So SEBI has decided to do away with certain earlier requirements, including disclosing the summary of the industry and business of the issuer company. This will hasten the process for companies and also help reduce the costs.