The Securities and Exchange Board of India (Sebi) has proposed a minimum price band of five per cent for initial public offering (IPOs) done through the book-building route.
Sebi also wants the non-institutional investor (NII) category in IPOs be divided into two sub-categories to prevent the crowding out of lower bids made in this segment. Sebi has sought the comments on these proposals till October 20.
An IPO can be made either through the book- building or the fixed price method. In book-building, bids are collected at various prices that are above or equal to floor price and less than or equal to the upper cap, with the offer price fixed after the bid closing date.
Sebi rules say in book building the upper end of the price band should not exceed of 20 per cent the floor price.
However, the price band is extremely narrow, sometimes as small as Rs 1, Rs 2 or Rs 3.
A narrow price band presents an opportunity to the issuer company to camouflage a fixed price issue as a book built issue. Sebi has suggested the upper end of the price band should be at least 5 per cent higher than the lower end.
Sebi said that there were concerns on the proportionate allotment method among non-institutional investors as there is an incentive to make an application of a higher bid amount that has the effect of crowding out the lower bids. Sebi wants the segment be divided into two sub-categories. The first is applications in the Rs 2 lakh to Rs 10 lakh range, which will be allocated one-third of the NII quota. The second is applications above Rs 10 lakh, which will be allocated the rest of the quota.
MF pooling ban
Sebi on Monday announced banning “intermediate pooling” of funds and units by mutual fund distributors, investment advisers, channel partners, platforms and other entities. The new rule, to come into force from April 1.
Asset management companies (AMCs) will have to put in place necessary systems to ensure that transactions of funds and units pertaining to subscription as well as redemption are directly done between the accounts of the investors and the mutual fund scheme accounts concerned. There will not be any intermediate pooling, Sebi said.
Under the fixed price method, the issuer has to allocate at least 50 per cent to retail investors and the rest to qualified institutional buyers and NIIs. In book building, at least 35 per cent has to go to retail investors, 50 per cent to QIBs and the rest to NIIs.
