Sebi`s QIP norm may end price manipulation

The rampant manipulation in share prices of companies going in for a qualified institutional placement (QIP) could now be curtailed, following the Securities and Exchange Board of India’s (Sebi) new guidelines for such placements.

On August 13, the capital market regulator said QIPs should be priced based on the average price of shares two weeks prior to the issue instead of taking the average price of six months or 15 days, whichever is higher.

 

TIGHT ANALYSIS

• Typically, the promoters of a company diluted a nominal stake of 10-15 per cent during an initial public offer (IPO)
• Post-issue, it became easy for operators to rig the share price as a result of lower liquidity. This later ensured that companies could execute private placements at better valuations

Market experts said earlier several companies planning a QIP issue were actively involved in rigging share prices before offloading their stake, enabling them to earn higher returns.

“For Sebi, it had become practically impossible to establish the share price manipulation if it was done over a long stretch of six months,” said a top stock broker.

The price manipulation was noticed mainly in shares of newly-listed companies. Typically, the promoters of a company diluted a nominal stake of 10-15 per cent during an initial public offer (IPO).

Post-issue, it became easy for operators to rig the share price as a result of lower liquidity. This later ensured that companies could execute private placements at better valuations.

A market expert said institutional buyers could now be in a better position to argue their case with companies if share prices moved up significantly over the past few months and not during the time of considering the base price.

“The operator would not risk rigging the share price during the two weeks, for which the average price of the QIP issue is to be considered as Sebi can easily analyse the data.” he said.

Another positive result of the amendment is that most companies that had postponed their QIP plans due to market uncertainty may now look to tap the market again as it would be easy to arrive at the average base price.

Investment banker said QIP issues of up to $8 billion are pending as company valuations have eroded by over 20 per cent during the market crash and shares were trading much lower than the base price arrived at.