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ISSUES RELATING TO INITIAL PUBLIC OFFERS
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Extant Sebi (DIP) guidelines, 2000 allow the issuers to price the issue upfront in case of an initial public offer (IPO) subject to their fulfilling certain eligibility requirements based on the following parameters:
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| Profitability Net worth Net tangible asset Issue size with respect to pre-issue net worth |
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| The aforesaid requirements with respect to net worth, profitability and net tangible asset ensure that a fly-by-night operator can not access the capital market through the fixed price IPO. |
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| In addition to that, by linking the issue size with the pre-issue net worth, Sebi has prevented the possibility of a big issue by an issuer having a small net worth. |
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| Any issuer, which is not in a position to comply with the eligibility requirements with respect to the aforesaid parameters, can still access the capital market provided that either the project for which the issue is being made has been appraised and participated by a financial institution/scheduled commercial bank or the issue is being made through the book-building route where at least 50 per cent of the issue size is required to be allotted to qualified institutional buyers (QIBs). |
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| These conditions of appraisal by financial institution/scheduled commercial bank and mandatory allotment to QIBs ensure that investment worthiness of those IPOs shall be judged first by financial institution/scheduled commercial bank and QIBs and then only can common investors invest in those issues. |
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| Besides this, issuers are required to make complete and proper disclosures in the offer document, authenticated by chief executive officer, chief financial officer and board of directors of the issuers, which enable investors to make an informed decision. |
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| Sebi (DIP) guidelines, 2000 also specify comparison of the several financial ratios of the issuer with that of the industry and peer group companies. |
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| This also enable investors to form an opinion about the standing of the issuer company vis-a-vis its peer group which helps him to take a call on the pricing. |
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| Therefore, the extant Sebi (DIP) guidelines provide sufficient checks and balances so as to ensure that no fraudulent issuer can access the capital market through the IPO route taking advantage of the current bull run. |
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| In the recent past, a number of good IPOs by government-owned entities such as Maruti Udyog Limited, UCO Bank etc have hit the market and some other IPOs such as that of Indraprastha Gas Limited are in the pipeline. |
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RECENT ACTIONS INITIATED
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Based on the deliberations in the weekly meetings, several areas of concern were identified and action has been taken, as given below.
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| Excessive speculative activity in a few scrips |
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It was observed
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