Sanjay Sharma, managing director and head of equity capital market, Deutsche Equities and also chairman of the Association of Investment Bankers of India, talks to Samie Modak on the new regulations for the primary market. Edited excerpts:
The market regulator has announced major changes to the rules governing the primary market. At a broader level, how are you looking at the new reforms?
After a long time, the Securities and Exchange Board of India (Sebi) has looked at the initial public offerings (IPO) guidelines afresh in a comprehensive manner. This is a very positive step and is targeted at encouraging higher retail participation in IPOs, increasing flexibility for issuers, safeguarding the interests of small investors and enhancing investor confidence, which is all good. From a small investor protection perspective, an important step has been the increased threshold of 75 per cent mandatory institutional demand, which not only raises the bar for companies that do not qualify the eligibility criteria, but also protects small investors by reducing their exposure to only 25 per cent.
Getting to specifics, do you think the two more routes for companies to bring down promoter holding will be useful? What would be the most-preferred route, according to you?
Adding the two routes for companies to bring down holding is in line with Sebi’s thinking that availability of products to reduce the holdings should not be a constraint for issuers. More importantly, the provision that enables Sebi to specify other options as well as modify any of the existing options is a very progressive step. In terms of the most-preferred route, it all depends on specific company requirements and would be different for different companies. For example, a large market cap company may prefer diluting through offer for sale (OFS), while a company with requirement of primary money for its operations may prefer the institutional placement programme (IPP) route.
Do you think allowing up to five per cent discount on Sebi-discovered price in qualified institutional placements (QIPs) will help?
This will certainly help listed companies to raise money. The Sebi minimum pricing was making QIP only a bull market product.
Sebi has said no withdrawal or lowering of the bids will be allowed in IPOs. Do you think this is a negative?
While removal of any flexibility, whether intended to be used by investors or not, is always treated as a negative, I don’t think this will impact substantially except that it is now more likely that QIBs will also wait till the last day to put in their bids.
Sebi intends to put in place a framework for faster clearances of offer documents. Will this help in rolling out issues faster or timing the market?
Certainly. In volatile markets that we are witnessing, anything that can be done to reduce the time to market and reduce the exposure to market fluctuations are welcome. It will also help issuers to plan and time their capital-raising exercise.
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What will be the impact of publishing price band five days ahead of the issue?
This is possibly the only change in the recent announcements which I think will be restrictive for issuers. I think the current provision of announcing the price band two working days before the IPO provided reasonable time for investors to evaluate the pricing. The requirement of five working days would unnecessarily expose the issuer to market volatilities.
How are you looking at the decision to provide additional incentives for brokers to push ASBA?
While providing incentives to brokers and also mandating banks to provide the ASBA (applications supported by blocked amount) ) facility in all their branches would encourage usage of ASBA, I would have preferred a mandatory ASBA scenario for all category of investors. We have had ASBA provision for a reasonably long period of time for the market to get used to it and incentives have helped only to a certain extent. For a quantum jump in usage of ASBA and also to reduce the post-issue timeline for issuers, it is imperative that it is made compulsory over a period of time.
What will be the impact of the modified allotment system for public issues?
The modified allotment system which ensures retail investors get allotment worth at least Rs 10,000 is a major step to enhance participation of retail investors. This, coupled with the fact that the IPO distribution network is being widened to more than 1,000 locations, will encourage savings from smaller towns to be channelised towards equity markets.