Market watchdog the Securities and Exchange Board of India (Sebi) is mulling over ways to rein in erring merchant bankers regarding overpricing of IPOs and hyping public issues through misleading advertisements and media reports outside the regulatory ambit.
The regulator is actively considering bringing out soon a discussion paper on the matter, wherein it would seek public comments on draft regulations to curb the menace of overpricing and hyping public offers, sources close to the development said.
The issue is likely to be discussed in the Sebi board meeting scheduled for tomorrow and thereafter the regulator might soon issue the draft guidelines for public comments, sources said.
Sources said that the Sebi could propose stringent actions against the erring bankers with regard to overpricing, unnecessary hype and violations of a standard code of conduct and business ethics, which would be detailed out in the discussion paper, they added.
The matter holds significance in the backdrop of Sebi warning the merchant bankers against creating a big hype in the case of the recently concluded mega IPO of Coal India, which is looking to raise an estimated over Rs 15,000 crore through the country's biggest ever IPO that was heavily oversubscribed.
Although, the Coal India IPO was widely considered as a well-priced public offer, a number of recent IPOs,especially by private companies, have been criticised severely for being over-priced.
Even the Sebi Chairman C B Bhave, at an annual merchant banking summit organised by the Association of Merchant Bankers in India (AMBI) last month, rued the trend of IPOs being over priced.
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Bhave urged the bankers to price the offers reasonably and said that high pricing is keeping retail investors away from the offers.
He said that the issuers were not willing to leave enough on the table for retail investors.
"In a bid to maximise returns for the promoters, merchant bankers are not looking at the interest of retail investors," Bhave had said.
Besides pricing of the offers, Sebi could also propose ways to discourage bankers from quoting near-zero fees to get the mandate for managing the public offers, sources said.
At the same time, the regulator could also ask the bankers to make public, on their websites and in the prospectus of offers being managed by them, the list of public offers managed by them in the past and the performance of those shares in the secondary market in comparison to the issue price.
To curb the unnecessary hype over IPOs, the Sebi could propose penalty and other stringent action against the merchant bankers found guilty of allowing misleading information, as also the facts not already mentioned in the regulatory documents such as IPO prospectus, in the advertisements and news reports, sources said.
The regulator is also considering making it mandatory for the issuers to give a disclaimer to the prospective investors that they do not take the responsibility of any media reports about them that were about facts outside the regulatory filings made by the company.
Recently, such a disclaimer was mentioned as a risk factor in Coal India IPO after the merchant bankers were pulled up by the Sebi after it came across numerous media reports about the company.
Whenever Sebi comes across any such offence, it has been so far dealing with the bankers on case-to-case basis and explanations were sought.
However, there are no formulated guidelines on this matter and Sebi has decided to frame such regulations after coming across repeated violations on this front, the sources said.