Ads for IPOs can be innovative but risk disclosures must: Sebi

The ads typically follow similar formats containing numerous details without any usual creativity associated with other ads

In their advertisements to attract investors to public offers, companies can be more creative and innovative as long as they are not misleading and contain necessary disclosures of associated risks and other facts, Securities and Exchange Board of India (Sebi) chairman U K Sinha said.

The primary market has been mostly sluggish for last few years, as companies have been finding it unattractive to enter the capital market to raise funds through sale of shares, although Sebi has taken a number of steps to revive this segment.  

Asked whether Sebi would allow the companies to be innovative to make their public offer advertisements more attractive, while disclosing key risk factors, Sinha said “that is mainly for the companies to decide”.

The public offer advertisements, aimed to hard-sell the initial public offerings (IPOs) and follow-on public offers (FPOs) among potential investors, typically follow similar formats containing numerous details without any usual creativity associated with other ads.  

“We want the advertisements should not be misleading and the risk factors and substantial facts are not suppressed,” Sinha said.

“The disclosure about risk factors and substantial facts are mandatory requirements and we cannot compromise on that”.

“But, within this framework, if the companies want to be innovative, they can certainly do it and they are most welcome to do that. We have not stopped them from being creative or innovative, but certain things have to be provided,” he said.

Sebi has been taking a number of steps to boost the primary market and its board on Tuesday also approved certain measures to make funding-raising process easier.

The board approved making the IPO grading mechanism by credit rating agencies voluntary, while companies have been allowed to file shelf prospectus with one-year validity for multiple issuance of debt securities.

Still, the IPO market has been sluggish for almost three years and IPO proposals worth Rs 72,000 crore are yet to hit the market despite having got regulatory clearance. The last major IPO was from state-run Coal India in 2010.

Among various reforms, Sebi has introduced an e-IPO mechanism through which investments can be done online without signing any physical documents. This has helped fast-track the public offer processing time.  

On account of streamlining of process and other external factors, the average time taken for processing offer documents has also come down from 152 days to 48 days.

Besides, a facility to procure and submit IPO forms is now available to investors in more than 1,000 locations, as Sebi has allowed use of stock broker network of stock exchanges for submitting applications.  

The investors are also now directly able to submit ASBA (Amount Supported by Blocked Amount) applications in more than 67,000 bank branches as against less than 10,000 branches that existed earlier.