The latest move by stock markets regulator SEBI to introduce an abridged prospectus with a new IPO application form does not solve either the purpose of transparency or the retail investor interest as it raises several questions than simplifying the procedures, say market analysts.
The SEBI has issued a notification introducing a ten-page format -- five sheets, printed on both sides -- replacing the 100-page version of the prospectus, to be issued with IPO application forms. The new format will be effective December 1, 2015.
It provides for increasing the font size of the application form, but at the same time abridges the material information that ought to be given to the investor about the company and its business.
For instance, as a legal expert says, the all-important risk factors section which normally runs into 35 to 40 pages is supposed to be condensed to 500 words. Even the section on the company’s business is supposed to be not more than 500 words.
Market analyst Arun Kejriwal, director of KRIS research, says “the increase in font size on page One which has to be filled by applicant is welcome because one can read the columns without using a magnifying glass.”
But, he says, the guidelines on inside pages leave much to be desired. For instance, the selection of risk factors becomes subjective. “There is a lot of ambiguity as to which factor is important and which is not. This could result in playing with fire,” he says.
Appreciating SEBI’s consistent efforts to make stricter compliance norms and increase the number of disclosures to the investor community, a top corporate lawyer said the latest move defeats the very purpose for which SEBI has been working.
On the one hand, SEBI has been working on SME listing and norms and fund raising by startups, while on the other it is making regressive moves like the abridged prospectus, he said.
Market experts opine that the retail investor will be unable to take decision on investing in IPOs on the basis of limited information given in the ten-page booklet. This could lead to increased retail apathy to IPOs, they aver.
A close watch of the retail participation in primary markets recently shows that the segment’s participation has been quite discouraging and, as per media reports, SEBI itself has taken a serious view of this.
Retail quotas in two major IPOs recently - InterGlobe Aviation (Indigo) and Coffee Day Enterprises - were not fully subscribed.
“As it is, the retail participation in IPOs is turning out to be very poor. Our apprehension is that the common investor will develop further disinterest as the information available to him readily is very limited to allow him to take a considered decision to put his hard-earned money into IPOs,” said a merchant banker, speaking on condition of anonymity.
Another merchant banker expressed the apprehension that company promoters would print fewer copies of the full-fledged offer document running into hundreds of pages and it will not be accessible to either broking or the investing community at large.
“Though we will have the option of tapping the online version of offer document, I seriously doubt how many investors in small centres in particular will be able to access it,” he said.
Data in public domain shows that India has over 350 million Internet users but the personal computer installed base is merely 55-60 million. Out of the total number of PCs installed, 55 percent are used by individual consumers and the remaining 45 percent by businesses and institutions. This poor penetration certainly limits the scope of retail investors tapping the computers for downloading IPO prospectus.
The other major consumer of the Internet data is the large mobile user base -- 65 percent of India’s Internet traffic as of May 2015 was driven by mobile devices.
As of February 2015, only 13 percent of subscribers in India were using 3G and 4G networks. Based on Cisco’s 2014 VNI Mobile forecast, India is at the lower-end of global use of data.
A major broking house partner said: “However smart, you cannot use smart phones to download a 500-page offer document and then read it before filling up an IPO application form.”
“At this rate, I wonder how the government will be able to fulfill its budget announcement to help companies reach out to retail investors,” he said.
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