 "Making the small investor irrelevant")
Who is a small investor? Till about five years earlier, Rs 1 lakh was widely accepted as the ceiling for someone to be considered small. However, in the run up to Coal India's (CIL) initial public offering, the finance ministry wanted the Securities and Exchange Board of India (Sebi) to double this limit, as they wanted to make sure the huge number of shares on offer in the retail quota got picked up. Given the tensions between Sebi and the finance ministry at that time, which became apparent only later, the Sebi move to enhance the limit to Rs 2 lakh came only after the IPO was over.
Unfortunately, there have not been enough big IPOs since to check if this was a wise move. With companies continuing to stick to the Rs 1 lakh number for classification in their quarterly shareholding filings, it would be safe to assume anyone with a holding of Rs 1 lakh or less is a small investor. In the Coal India IPO, only 444 individuals bought shares above Rs 1 lakh according to its filing on October 30, 2010, immediately after the issue. About 1.5 million people investing less than Rs 1 lakh became shareholders.
Compare this with the recent offer for sale (OFS) by the same company, for almost the same amount of shares. According to CIL's new shareholding pattern, filed with the bourses on February 4, it had 0.63 million people holding shares each worth Rs 1 lakh or less, and another 206 holding more than Rs 1 lakh. At the end of December 2014, the numbers were 0.57 million and 155, respectively. So, Coal India added a net of about 60,000 small shareholders and another 51 slightly larger shareholders.
A big IPO is like a carnival on the Street. There is an announcement. There are press conferences. There are road shows. There are investigations, analysis and gossip. The timeline between the announcement and the opening of shares allows bankers and brokers to tell the story to the public and sell the shares. The Reliance Power IPO is often invoked for all the wrong reasons. For all its flaws, R-Power got 4.02 million shareholders, many of them first-time, into the market. Seven years on, it still has 3.8 mn small shareholders, probably the highest number for any Indian company.
But, in its enthusiasm to make money-raising easy for companies and a protective parental attitude, the regulator seems to have unintentionally robbed the circus of its jokers and the carnival spirit. Without the jokers, the crowds are not coming in. Take a look at the BS Special page on the primary market last week. It is the ‘small-guy free’ new instruments such as OFS, Qualified Institutional Placements (QIPs) and Institutional Placement Mechanism (IPP) that are accounting for the lion’s share of money raised. While follow-on public offers are as good as dead, IPOs are still under production for a few years now, with only ‘Coming Soon’ posters all around. And, small investors can’t invest in the small and medium enterprises bourses, again not safe for them.
Now, to the horror of STREET FOOD, which had been dreaming of seeing the first e-commerce IPO, Sebi is planning a separate regime for ‘start-ups.’ Guess what? It won’t allow small guys (anyone with less than Rs 10 lakh) because it is going to allow headless start-ups to sell shares to ghost investors, who are competent to handle the incomplete disclosures. Makes me wonder -- do start-ups swimming in cash want to come to Sebi or is Sebi feeling left out and wanting to jump on the bandwagon. In the process, another instrument that will further alienate the small guy is being built up in a great hurry.
Detective Byomkesh Bakshy would have said: “Yeh to small investor ka mamla hai, bhai, isme Sebi kya karegi?”
Unfortunately, there have not been enough big IPOs since to check if this was a wise move. With companies continuing to stick to the Rs 1 lakh number for classification in their quarterly shareholding filings, it would be safe to assume anyone with a holding of Rs 1 lakh or less is a small investor. In the Coal India IPO, only 444 individuals bought shares above Rs 1 lakh according to its filing on October 30, 2010, immediately after the issue. About 1.5 million people investing less than Rs 1 lakh became shareholders.
Compare this with the recent offer for sale (OFS) by the same company, for almost the same amount of shares. According to CIL's new shareholding pattern, filed with the bourses on February 4, it had 0.63 million people holding shares each worth Rs 1 lakh or less, and another 206 holding more than Rs 1 lakh. At the end of December 2014, the numbers were 0.57 million and 155, respectively. So, Coal India added a net of about 60,000 small shareholders and another 51 slightly larger shareholders.
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Even discounting for the demand created by the first-time issue, the OFS (which got the retail quota added as a bit of an afterthought) hopelessly falls short on getting in small investors. The OFS got only four per cent of the retail number clocked by the IPO.
A big IPO is like a carnival on the Street. There is an announcement. There are press conferences. There are road shows. There are investigations, analysis and gossip. The timeline between the announcement and the opening of shares allows bankers and brokers to tell the story to the public and sell the shares. The Reliance Power IPO is often invoked for all the wrong reasons. For all its flaws, R-Power got 4.02 million shareholders, many of them first-time, into the market. Seven years on, it still has 3.8 mn small shareholders, probably the highest number for any Indian company.
But, in its enthusiasm to make money-raising easy for companies and a protective parental attitude, the regulator seems to have unintentionally robbed the circus of its jokers and the carnival spirit. Without the jokers, the crowds are not coming in. Take a look at the BS Special page on the primary market last week. It is the ‘small-guy free’ new instruments such as OFS, Qualified Institutional Placements (QIPs) and Institutional Placement Mechanism (IPP) that are accounting for the lion’s share of money raised. While follow-on public offers are as good as dead, IPOs are still under production for a few years now, with only ‘Coming Soon’ posters all around. And, small investors can’t invest in the small and medium enterprises bourses, again not safe for them.
Now, to the horror of STREET FOOD, which had been dreaming of seeing the first e-commerce IPO, Sebi is planning a separate regime for ‘start-ups.’ Guess what? It won’t allow small guys (anyone with less than Rs 10 lakh) because it is going to allow headless start-ups to sell shares to ghost investors, who are competent to handle the incomplete disclosures. Makes me wonder -- do start-ups swimming in cash want to come to Sebi or is Sebi feeling left out and wanting to jump on the bandwagon. In the process, another instrument that will further alienate the small guy is being built up in a great hurry.
Detective Byomkesh Bakshy would have said: “Yeh to small investor ka mamla hai, bhai, isme Sebi kya karegi?”