SEBI planning extensive reforms in IPO, MF rules

The SEBI Board in its meeting on 16th August is likely to discuss regulations for mutual funds and IPOs, including a 'safety net' guarantee and tax incentives for new investors

New Delhi: Market regulator Securities and Exchange Board of India (SEBI) will consider this week wide-ranging reforms in its regulations for mutual funds and initial public offers (IPOs), including a 'safety net' guarantee and tax incentives for new investors, reports PTI.
Various proposals expected to be discussed and approved at the upcoming board meeting of SEBI on 16th August also include introduction of e-IPO, which would allow investors to bid for IPO shares electronically and without any physical paperwork.
According to a senior official, the key proposals for reforms in primary market include introduction of a 'safety net' guarantee for the investors buying shares through IPOs.
As per the proposed mechanism, a certain portion of the investment made by retail shareholders in the IPOs could be guaranteed for a fixed period, which could of six months, even if the shares' value plunge below the IPO allotment price during this time.
This 'safety net' mechanism is being considered only for the small retail investors, who would be compensated by the promoters and other entities selling shares through IPOs in the event of the company's shares plunging below a certain threshold limit within six months of listing or the time frame set by SEBI, sources said.
As per the current regulations, the companies are allowed to provide such 'safety nets' during their IPOs, but it is not mandatory for them to make such provisions and only a few companies have provided such facility for investors in the past.
SEBI is of the opinion that a mandatory 'safety net' provision would also help in fair pricing of IPOs, besides providing investors some sort of capital protection guarantee.
Many companies and investment bankers have come under the criticism of over-pricing of IPOs after their shares fell below the public offer price levels in several cases.
Sources said the companies could be allowed to pass on the costs of 'safety net' provision to the investment bankers, who are primarily responsible for fixing the price of shares to be sold through IPOs. 
At the upcoming board meet, SEBI is also likely to discuss a new definition for 'small or retail investors' as there are some ambiguity in current regulations.
For IPOs, the investors putting in up to Rs2 lakh are considered retail investors, while already listed companies distinguish small and large individual shareholders as those holding shares worth up to Rs1 lakh and those holding shares worth more than Rs one lakh, respectively.
For mutual funds, the regulator will consider giving the fund houses flexibility in using their expense ratio. At present, the fund houses are required to divide their expense ratio (an amount deduced from investors' funds) as per a fixed formula between the fund management fees and other expenses.
There have been demands from some section of the mutual fund industry to allow levying an additional charge of 2% from investors. However, the demand has faced opposition from within the industry and was being seen as return of the controversial entry-load (a charge levied on new investors), which was scrapped by SEBI in 2009.
The introduction of any fresh charge could be seen as an anti-investor move and therefore SEBI is not very comfortable with any such idea, the official said, while adding that there could be certain tax incentives to attract investors to mutual funds, while measures would be discussed to help the mutual fund distributors as well.
In his first press conference after taking over as the country's new Finance Minister, P Chidambaram had also said last Monday that a number of decisions would be taken soon to encourage more people to invest in mutual funds, insurance policies and other instruments.
A major tax incentive proposal relates to the stock investments as well, as SEBI would consider finalising the fine prints of Rajiv Gandhi Equity Scheme, which was announced in this year's Union Budget and provides for tax benefits to first time investors in the stock market.
Besides, SEBI is also considering changes in the profitability eligibility criteria for companies allowed to come out with IPOs, while some changes could be made in follow-on public offer (FPOs) and other methods of share sale by already listed companies.


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Over 40 companies await SEBI nod for initial share sale, rights issue

According to latest information available with SEBI, draft documents for IPO from as many as 33 companies and preliminary papers for rights issues from 11 entities are under process

New Delhi: More than 40 companies including Bhushan Steel and TV18 Broadcast Ltd are awaiting green signal from market regulator Securities and Exchange Board of India (SEBI) to come out with their initial share sales and rights issues, reports PTI.
The initial public offering (IPO) documents of six of the companies -- Jain Infraprojects, Shirdi Industries, NKG Infrastructure, Tunip Agro, Palco Recycle Industries and Splash Media & Infra -- have been pending with SEBI since 2010.
Draft documents for IPO from as many as 33 companies and preliminary papers for rights issues from 11 entities are under process, according to latest information available with SEBI.
The data compiled from September 2009 onwards is updated till 3rd August.
Last month alone, three companies -- Bajaj Finserv Ltd, City Union Bank and Reliance Mediaworks Ltd -- filed papers for rights issue. V-Mart Retail Ltd submitted draft document for an IPO on 23rd July.
Bajaj Finserv and City Union filed the documents on 18th July while Reliance Mediaworks did it on 30th July.
So far this year, the market regulator has received draft documents for 10 initial public offers.
As per regulations, SEBI might issue observations on a draft offer document filed with it within 30 days from the date of receipt of papers, among others.
In some cases, observations are issued only after receiving satisfactory reply from lead merchant bankers if SEBI has sought any clarification or additional information from them.
Other entities awaiting SEBI nod for IPOs include Javved Habib Hair and Beauty, Ambuja Intermediates, Repco Home Finance, Credit Analysis Research, Bohra Industries, Advanta India and Tara Jewels.
According to SEBI, the follow-on public offer document of Mukesh Udyog Ltd is pending since early 2011. The company filed its papers on 29th March last year.
Amid sluggish market conditions, the amount raised by way of initial public offers has dropped over 60% in the first six months of this year.
In the six months ended June, Indian companies mopped up just Rs1,264 crore, compared to Rs3,392 crore in the same period last year.
Major initial share sales so far this year include that of commodity bourse MCX's Rs663 crore IPO. Sesides, Tribhovandas Bhimji Zaveri and Specialty Restaurants have raised Rs200 crore and Rs176 crore respectively.



anantha ramdas

5 years ago

Most IPOs and rights issue in the last few months have brought no cheer to the investing public and in any case the market itself has been very erratic and unpredictable.

Personally I would rather take the risk of investing in blue chip companies where even if I do not make a profit, I won't lose my capital base. Now, when IPOs come, invariably they are with varying "premiums" and after listing I can get them cheaper!

From your list of likely IPOs and rights only a handful are worth considering after serious

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