New Delhi, Sept. 2 (PTI): Market regulator Sebi may soon ask companies and merchant bankers to limit any business transactions among them to bare minimum and to provide investors with a detailed analysis of how they discover the IPO price range.
The steps are aimed at safeguarding investors’ interest and ring-fencing the IPO market from possible over-pricing of the public offers through a nexus between the promoters and merchant bankers, a senior official said. Sebi has made it mandatory for the merchant bankers to provide a track record of the offers managed by them. It has also announced steps such as stricter eligibility criteria for tapping the capital markets through IPOs.
A proposal is already underway to ask the promoters and merchant bankers to provide a capital protection guarantee for a certain period to part of shares allotted to retail investors through a mandatory “safety net” provision.
Sebi is considering further IPO reforms to revive this segment as a preferred investment route for the retail investors, which used to be the case till a few years ago.
The situation has changed after a dismal post-IPO performance of many firms in recent years.
While investigating certain cases of IPO-related irregularities, Sebi came across instances of some promoters and merchant bankers manipulating the offers as well as post-listing share trades.
In some cases, the IPOs were priced way above the fundamental value of the shares, but the companies managed to sell the shares with support from “friendly” entities and later gave them an opportunity to exit by keeping the share price inflated for some time after listing. The shares came crashing down later, leaving genuine investors in the lurch and with heavy losses.