How SEBI has pushed reforms on the IPO front…

The recent SEBI meet that concluded this week was special for the reason that it was the first meet chaired by the new SEBI chairman, Mr. Ajay Tyagi. The Board meet also had a very heavy agenda and to the credit of SEBI they have gone ahead and pushed for reforms on most of the areas. There were a lot of pending issues on the IPO front and the SEBI Board meet has taken a decisive step on two fronts…

Monitoring of IPO fund usage… 

The previous financial year 2016-17 saw nearly $2.2 billion raised through the IPO route. The coming year is likely to be much bigger with $5 billion likely to be raised through the IPO route. Recent IPO listings have not only been at a premium but have also sustained post-listing gains. That has substantially reinforced the faith of investors in the IPO markets. The SEBI Board meet has approved the reduction of IPO funds monitoring threshold from Rs.500 crore to Rs.100 crore. Currently, only IPOs that raise above Rs.500 crore are required to appoint an agency to monitor the usage of funds raised through the IPO. That limit now stands reduced to Rs.100 crore. There have been constant allegations of promoters diverting funds for purposes other than stated in the prospectus. The monitoring agency will report all such deviations to the shareholders as well as to SEBI. That will surely be a major check on fly-by-night promoters in the IPO market!

Expanding the QIB definition… 

One of the key investor participants in the IPO market is the qualified institutional buyer (QIB). Normally, banks, insurance companies, mutual funds and foreign institutional investors are included under the definition of QIB. In its latest board meet, SEBI has expanded the definition of QIB to include systemically important NBFCS also under that header. Thus, NBFCs with a net worth of Rs.500 crore and more will be permitted to invest via the QIB route. Since QIB allotments are on a discretionary basis, this will incentivize NBFCs to apply for a larger share of IPO allotment. From the fund raiser’s point of view, this opens up a new sales channel for raising equity funds from, apart from the regular financial institutions that are anyways being tapped. This will also make NBFCs more serious players in the IPO market. 

How will these help IPO markets?

These announcements are surely a step in the right direction. The IPO monitoring of issues above Rs.100 crore will ensure better usage of funds raised through IPOs. Investor interest will be better protected. The inclusion of large NBFCs under the definition of QIB will expand the QIB universe. In the process the IPO market will become broader and more transparent. SEBI has made a start; a lot will depend on how these measures are implemented! ©

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