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Retail investors get more leeway in public offers

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will soon be able to apply for more shares in public issues with the same amount of money. The Securities and Exchange Board of India () has ruled that investors offered shares at a discount should be given the option of applying at the discounted price rather than the cut-off price.

In simple terms, if the price band in a public offer is Rs 100-200 and retail applicants are offered a 10 per cent discount, such investors can bid at Rs 180 (10 per cent discount at the upper end of the band). At present, investors can only select a cut-off price.

The new norm will help retail investors put in a larger bid with the same amount of money. For instance, retail investors can bid for a maximum of 1,000 shares if the upper end of the band is Rs 200. Under the new norms, they will be able to bid for 1,111 shares. The norm will apply to draft documents filed with the on or after June 15.

“Merchant bankers shall ensure that appropriate disclosures are given in the offer document/application forms to the effect that investors eligible for a discount can make payment after adjusting the discount, if any,” says the Sebi circular. For ease of calculation, it is preferable that the discount, if any, is stated in absolute rupee terms, subject to the maximum limit, it adds.

“It is a retail investor-friendly move,” said Prithvi Haldea of Prime Database. “It simplifies the entire issuance process.”

According to the circular, the current practice “takes away certain benefits from investors such as lower cash outflow at a price net of discount and the ability to apply for more shares with the same cash outlay”.

This assumes significance in the light of the government’s divestment programme, through which it intends to raise Rs 40,000 crore this financial year. The coming months will see the government dilute stakes in , and . It is also likely to offload a part of its equity in IOC, NBCC, MMTC and Rashtriya Ispat Nigam.

“It reduces work for entities involved in the issuance process,” said S Vishvanathan, MD & CEO, SBI Capital Markets. “There will also be operational advantages in terms of processing refunds.”

The move will help solve the refund problem, a bane for both bankers and registrars. If a retail investor is not applying through the Application Supported by Blocked Amount facility, a cheque for the excess amount has to be physically delivered at the applicant’s address. Quite often, applicants complain about delay in getting refunds.

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