Investors eligible for share price discounts in public offers would now get this benefit at the time of their bids, as against the current practice of such discounts being given at the time of share allotment.
In a circular issued to the stock exchanges, merchant bankers and other entities associated with public offers, market regulator Sebi has expressed its concern over the current practice as investors lose on the benefits like lower cash outgo and possible eligibility for more shares.
Sebi said the new rules, which mandate discount being given at the time of bidding for initial or follow-on public offers (IPOs/FPOs), would be applicable on public offer documents filed on or after June 15, 2011.
Generally, retail investors and employees of the companies launching public offers get a discount of about 5% in the price of the shares being sold in IPOs and FPOs.
Retail investors are allowed to bid for shares worth Rs 2 lakh in a public offer, but non-applicability of the discount at the time of bidding could lead to them getting less than the allowed quota of shares.
"It has been observed that presently, the effect of such differential pricing, if any, in a public issue, is being given to the eligible investors only at the stage of allotment of specified securities and not at the time of filing an application for such allotment," Sebi said.
"This takes away certain benefits from the investors such as lower cash outflow at a price net of discount, the ability to apply for more shares with the same cash outlay, etc," it added.
"In order to address the aforesaid issue, it has been decided to allow investors eligible for differential pricing in public issues to make payment at a price net of discount, if any, at the time of bidding itself," Sebi said.
In this regard, Sebi has asked merchant bankers to ensure appropriate disclosures in offer documents and application forms to the effect that investors eligible for discount can make payment after adjusting the discount, if any.
"It shall be disclosed that such investors shall in the relevant column indicate the bid price before adjusting for discount, if any," Sebi said.
Sebi has also favoured discount being mentioned in absolute rupee terms for the ease of calculation by investors eligible for differential pricing.
Sebi has also asked the stock exchanges and other market entities to effect necessary changes in their systems for the new mechanism.
