SEBI Probing 3 Cases of IPO Malpractices Involving Merchant Bankers: Madhabi Puri Buch

Moneylife Digital Team 19 January 2024

Investor Interest

Highlighting the market regulator's intention to crack down on mule accounts, the intermediaries used for fraudulent activities, like inflating subscription numbers in an initial public offering (IPO), SEBI chairperson Madhabi Puri Buch says it found that three merchant bankers are frequently indulging in inflating subscriptions during share sales. SEBI will take action against them, she says.

Speaking at the AIBI annual convention in Mumbai, the SEBI chairperson says the market regulator has data and evidence on mule accounts, where the credentials of an innocent person are typically front-run on stocks by those wanting not to leave a trace of trades.

Further, there is also a tendency to inflate the IPO application numbers to give an impression of a high amount of subscriptions and SEBI has data on that too, she says.

According to the SEBI chief, the IPO price discovery mechanism is not perfect at present. "We are also seeing practices where there is a pattern of which kind of merchant bankers tend to be...Frequent names occur in such malpractices. Therefore, in the interest of the investors, we will be required to both review policy as well as (initiate) enforcement actions."

Cautioning investors against being swayed by subscription numbers or perceived euphoria over an issue, the SEBI chairperson says investors should wait for price discovery to be more efficient in the case of IPOs. "Don't rush into IPOs. Wait for the prices to stabilise."

Buch also cautioned investors against being swayed by subscription numbers or perceived euphoria over an issue, saying, "Don't rush into IPOs. Wait for the prices to stabilise. Retail investors should wait till the first quarter results before entering a newly listed company."

According to Prime Database, the IPO pipeline for 2024 continues to remain strong, with 27 companies proposing to raise Rs28,500 crore are presently holding approval while another 36 companies looking to raise about Rs40,500 crore are awaiting approval from the market regulator.

The year 2023 saw 87 companies filing their offer document with SEBI for approval (in comparison to 89 in 2022). On the other hand, 2023 also saw 40 companies looking to raise nearly Rs70,000 crore letting their approval lapse, three companies looking to raise Rs3,550 crore withdrawing their offer document and SEBI returning the offer document of a further six companies looking to raise Rs10,800 crore.

IPO response was further buoyed by strong listing performance, Prime Database says, adding, "Average listing gain (based on closing price on listing date) increased to 29%, in comparison to 11% in 2022." (Read: 40 Companies Looking To Raise Nearly Rs70,000 Crore through IPO Let Their Approval Lapse in 2023: Report)

Comments

User

C.George

1 year ago

Very true. Madam may take immediate steps to set right the IPO price discovery method. End utilisation of IPO funds must be got verified by financial experts and technically competent engineers with in an acceptable time frame.