Sebi calls for sweeping changes in public issues 

The Securities and Exchange Board of India (Sebi) on Monday proposed changes in the way public share offerings are done, spelt out guidelines for smaller companies to raise capital through share sale, and called for more disclosures from listed companies to prevent delayed shocks in the form of holes in their books of accounts. The regulator has introduced the pure auction method of book building in share sale, where institutional bidders can bid at any price above the floor instead of restricting them to bid in a band fixed by investment bankers. Shares would be allotted to those whose bids are at the top price, starting from the highest bidder.

It is a win-win situation for all, says Prithvi Haldea, MD, Prime Database, an IPO-tracking firm. It gives the company the price it deserves, it gives the institutional investor the number of shares at the price he wants, and it reduces the hassles of price discovery for retail investors who will now only get a fixed price option. 

This would be initially experimented with follow-on public offers (FPOs) by companies whose shares are already listed on the stock exchanges . Mr Haldea says this should be extended to initial public offerings (IPOs) as well. Once the pure auction system is implemented , the era of over subscription in the QIB category will end, he adds. 

This experiment may not significantly change the way fundraisings are done, some say. In an FPO, the new mechanism will have a marginal impact as the price band will typically be narrow since the market price of the company will act like the cap price, says Mehul Savla, director, Ripple Wave Equity. At the same time, the book will reflect the actual demand for the shares as compared to the proportionate allotment method. 

Under the auction method, retail and high net worth investors will surrender their choice to play a part in the price discovery as they would be allotted shares at the floor price discovered in the auction. However, the auction method has not been mandated by the regulator . The firm can choose it or go for the book-building method. 

PUBLIC INTEREST 

• Companies listed on SME exchanges to be exempted from eligibility norms applicable for IPOs & FPOs 

• Minimum IPO application size and trading lot for small and medium enterprises to be Rs 1 lakh 

• Companies wanting to list on SME platform should have maximum Rs 25-crore paid-up capital. For listing on NSE and BSE, minimum paid-up capital of Rs 10 crore to be required 

• Shares reserved for a company's employees in public issues will have a ceiling of Rs 1 lakh on the value of allotment per employee 

• All listed entities, with subsidiaries, have an option to submit consolidated financial statements as per IFRS, but these entities will have to continue filing their standalone results as per Indian GAAP 

• Companies have to disclose balance-sheet items, with audited figures or unaudited figures with limited review, on a half-yearly basis 

• Firms will mandatorily disclose audited results within 45 days of the end of the quarter. Audited annual results have to be disclosed within 60 days for those companies that opt to submit annual audited results on a stand-alone basis 
  
  Economic Times, New Delhi, 10-11-2009.