Ref. Consultation paper on review of price band and book building framework for public issues
2. Please
simplify the process of making an application in IPO: although the amount
of information to be filled has been greatly reduced to minimal, the main
problem stems from the price band. How to calculate the lot size and number of
shares to be subscribed. One will need an expert to do that. Under the present
regime of price band system, for making an application in an IPO, one must take
the help of brokers and experts. You may try it out in your office like a fun
game and see how many of the officer who volunteer to participate in the
exercise are able to complete an IPO application and how much time it takes to
fill it up,
3. Just
as a legal compulsory compliance, a miniscule price difference is made in
IPO: the issuers/merchant bankers have to give 2
price points, without there being much difference in the upper and lower price.
SEBI has recently directed that there
should be greater difference in the price bands. But why insist on price band
at all. All successful IPO are always on the upper price bands. Even in
unsuccessful IPOs when price bands were revised lower, the ultimate
subscription was on the upper price band.
4. Please
abolish the Lot size in IPO: With the electronic mode of trading, there is
no concept of lot size as it was under the vintage OUTCRY system. One can easily
sell even 1or13or189 or 1000 shares with equal ease. When there is no lot size
for trading in the market, why have lot size for IPO application? Lot size has
been made only because of price bands and the desire of SEBI to help small
investors. Thus the lower integer number obtained by dividing 15000 by the
price is declared as lot size.
5. Allow
investors to make an informed decision- make future projections compulsory: As a mischief legislation, projections and all
forward looking statements were banned by SEBI.
As a consequence, the investors have to play blind. When we buy even a
bottle of shampoo, we read the promise that it will make our hair soft and
silky etc. but the issuers are able to collect thousands of crores without
making any promise or any obligation on themselves that how they will make
investors’ money grow! Today, investment in IPO is just because of the euphoria
created by the brokers and grey market premium. In our guess not even 10% of
the investors in Zomato would not know that the company is not likely to report
profit in the next couple of years. If projection was made compulsory, such
euphoria could not have been created.
6. Mandate
proper information in the IPO announcements: Please check again any 50/100 announcements
that appear in Newspapers for IPO and see what value an investor derives from
it? These statutory announcements are actually advertisements for merchant
bankers etc. Kindly check percentage of
space dedicated to information that will help an investor make a decision. It
will not be more than 20%.
7. Make
KEY INFORMATION MEMORANDUM mandatory: This should be short and crisp. Some basic
information like area of operation, products, competitors, key customers,
geographies that it caters to, GPM, EPS, PE, Industry PE, a statement from the
management why a person should invest in the company and any other information
thought fit by you.
Our pointwise
suggestions in the desired format is given below. In case you plan to have any
formal meeting and discussion, we shall be happy to participate in the same.
|
Sr. No. |
Reference
Para of the consultation paper |
Suggestion/
Comments |
Rationale |
|
1 |
4.1 |
The price
band system should be abolished completely |
As given in
detail above a.
Serves no purpose b.
Makes the process of share application very
complicated c.
Failed to live up to its expectations d.
Does allow calculation of simple ratios like
PE etc. e.
Neither the investors nor the issuers find it
useful but just abide as legal compliance
|
|
2 |
4.1.1 |
No need for
minimum price band in public issue |
Serves no
purpose |
|
3 |
4.2 |
Yes. This is
a very good move. NII category may be further divided into two
sub-categories. But we differ
on the Band and allocation i Sub-category
1: 50% of the allocation earmarked for NIIs shall be for application sizes
ranging above INR 15,001 and upto INR 10 lakhs. ii.
Sub-category 2: 50% of the allocation earmarked for NIIs shall be for
applications above INR 10 lakhs. |
This will
enable self funded midsized investors get better allocation. There are
many small investors who do not realise that in a heavily oversubscribed
issue and application of minimum 15000 or upto 2,00,000 will hold the same
chance of allotment under the present system of allocation. We therefore
suggest that a.
small investors / Retail category should have
only one size 15,000 b.
NII Sub-category 1 INR 15,001 and upto INR 10
lakhs c.
NII Sub-category 2 above INR 10 lakhs This suggestion
is mainly from the angle of making the equity culture more popular and
distributing available opportunity for gain to larger number of people rather
than allowing smaller number of people earning large profits. |
|
4 |
4.3 |
proportionate
allotment in case of NII category should not be discontinued |
SEBI’s one of
the objectives is to grow the capital market. Proportionate allotment will
make many more happy investors. No one will consider himself unlucky, or
manipulation because it is a sheer
mathematical calculation. On the other hand draw of lots will make some very
happy and many very frustrated. A repeat of non- allotment may wean away many
investors from the capital market. |
|
5 |
4.3.1 |
Yes, NII
category be subdivided into two, with one sub-category exclusively for not so
large NIIs. |
As explained
in para 3 above. |
|
6 |
4.3.2 |
50% |
As explained
in para 3 above. |
|
7 |
4.3.3 |
Sub-Category-1
INR 15,001 and upto INR 10 lakhs. Sub-category
2: above INR 10 lakhs. Note- there
must be a cap on the maximum size of one single application. No application
can be for more than the size reserved for that category. |
As explained
in para 3 above. In
sub-category -2 if the maximum size cap is not there, it may lead to some
kind of manipulation. I am remined of the manipulated issued of Bharat Rodd
Networks. The matter was reported to
SEBI my the undersigned but unfortunately no corrective action was taken and
investors lost heavily. The promoter Group SREI, is now under liquidation. |
|
8 |
4.3.4 |
Allotment
methodology for NII category – should be Proportionate. |
Draw of lots
makes IPO a game of chance, even for larger amount. Moreover it is against
the basic objective of SEBI to grow a healthy capital market. More number of
allottees mean higher participation by
the population. |
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