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| IPO application: Sebi committee wants 1-day window for QIBs |
| BS Reporter / Mumbai Sep 11, 2009, 01:12 IST |
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Qualified Institutional Buyers (QIBs) may get only one day for applying when an initial public offering opens for subscription. According to discussions at the market regulator’s Primary Market Advisory Committee meeting today, there was a consensus on reducing the period for QIB applications from five days at present.
The Securities and Exchange Board of India board will take a final decision on the issue when it meets towards the end of the month, but generally the board goes along with the recommendations of the committee.
The logic behind such a move is to ensure better price discovery in initial public offerings. Currently, IPOs are open for subscription for five days for all classes of investors and bids are accepted till the last hour.
QIBs now apply for IPOs by paying just 10 per cent of the application money and hence their applications are many times more than the actual appetite. They get nearly a fortnight to make payment for the balance amount on allotment. In case of the issue being oversubscribed, they get lesser allotment and the application money takes care of the full payment. Since retail and high net worth investors don’t get the facility of paying just 10 per cent, market players have been calling for a level playing field.
"Subscription commitments in IPOs are generally pre-arranged, so there is no point in keeping it open for five days. If the time period for QIP application is implemented, it will be a step in the right direction by Sebi", said the head of a mutual fund who did not wish to be quoted.
QIBs, which include foreign institutional investors and domestic institutions generally set the tone for retail subscription in IPOs, as they are considered to be a more informed class of investors. The QIB subscription is vital for the success of any public issue as a major portion is reserved for them. Currently, 60 per cent of IPOs are reserved for QIBs, out of which 5 per cent is for mutual funds on a proportionate basis. A total of 30 per cent is reserved for retail investors and 10 per cent for non-institutional investors.
If this is implemented, this would mean allotment for the QIB portion can be made in two days after their part of the issue closes and they can be asked to make the balance payment soon after allotment. Sebi has been contemplating asking 100 per cent application money for QIBs.
Anchor investors will have to make 25 per cent payment on day one and the rest within two days of issue closure. The same will now be applied for QIBs as well.
The regulator is also looking to further reduce the time period for allotment in public issues from 15 days to five days. "There were discussions on reducing the time lag and making the process more efficient. Today, a lot of companies are tapping ADRs and GDRs for fund-raising, so the discussion was also on making the fund-raising process easier for them through rights issues and follow-on offers", said a source who did not wish to be named.
The primary market advisory committee also discussed that a more aggressive approach was needed to track the deployment of funds through rights issues and follow-on offers.
Sebi has recently taken several measures on primary market reforms, the principal ones being introduction of ASBA (Application Supported by Blocked Amount and the concept of anchor investors in IPOs, and lesser disclosure for rights issues.
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