I-bankers fret as Sebi tells them to reveal track record

Investment bankers are disturbed at a discussion paper circulated by the capital markets regulator last year, requiring them to disclose their past track record when they set about a fresh offer document.

Track record in this context is traditionally understood to mean not only the company and its issue size handled in the past by a banking entity, but also the movement of its shares. Investment bankers see no good reason why they should be held responsible for the share price movement after listing. They intend to meet the Securities and Exchange Board of India (Sebi) to discuss this.

“It is proposed that all merchant bankers be directed to disclose the track record,” Sebi said in a discussion paper circulated around November. Sebi feels the record of the investment banker managing the issue would be a good barometer for making investment decisions. The regulator said the disclosure should be made available in the offer document and also on the website of the investment banker. In recent weeks, investment bankers have had a series of meetings on this issue and voiced concern among themselves.

The Association of Merchant Bankers of India (Ambi), their umbrella body, has decided to take up this matter with the regulator.

Indicating what?
Bankers, on condition of anonymity, say while their record would typically be judged in terms of returns generated by the companies that they had taken public, this is not such a simple matter. “One cannot get the correct picture by looking at the issue price and the current market price in isolation,” says the director of an investment banking entity. “How will one judge the returns if the stock doubled after listing and then dropped below the issue price? If one looks at the high, then the issue can be termed good. But the fall thereafter makes it a bad one,” says this banker, also an active member of Ambi.

They note that companies, once listed, are not required to discuss business decisions with their investment bankers. In such a scenario, the performance of the bankers should not be correlated to the stock price.

“I do not agree with this concept, as investment bankers cannot be held responsible for share price movement post-listing,” says Prithvi Haldea of Prime Database. “There are a lot of external factors like decisions taken by the promoters or management, market conditions, sector outlook. A company is under no obligation to consult bankers on decisions that can impact the share price. But, yes, the bankers should be pulled up for wrong disclosures,” says this former member of Sebi’s Primary Market Advisory Committee.

“There is nothing inherently wrong with the company but still the stock could be in doldrums on account of overall negative sentiment in the market. How does one judge performance in such a scenario?” asks another investment banker specialising in mid-sized issues. Investors take a decision based on the company and its outlook and not on the basis of the investment banker, he adds.

Concerns such as these have made bankers apprehensive about this disclosure. They feel if the regulator still wishes to proceed, other checks and balances are needed. Stock returns cannot be the only barometer, they say.