The Securities and Exchange Board of India’s (Sebi’s) proposal to ask merchant bankers to monitor the end-use of funds after listing is not at all practical (“Sebi may ask merchant bankers to monitor end-use of IPO money,” January 17). The contract between an issuer and a merchant banker is till the time of listing and release of public issue funds. Tracking the utilisation of funds would not be possible for merchant bankers since, unlike bankers to the company, the management of the issuer would not provide merchant bankers with access to management decisions. In order to implement Sebi’s proposal, merchant bankers will have to be given special authority for a certain period after listing to monitor the issue proceeds and access various internal records, including the release and deployment of funds from the public issue. The conflict of interest is quite apparent here.
The best option is to make the appointment of a monitoring agency compulsory for all the public issues irrespective of the issue size. And one of the bankers to the company, who already has access to the company’s operations, should be made responsible for monitoring funds. This can be implemented without any difficulty since all issuers are required to obtain a No Objection Certificate from all their bankers before even filing the Draft Offer Document or Draft Red Herring Prospectus with Sebi. The prospective issuer can request any of its bankers to act as a monitoring agency for the funds to be received from the public issue. Normally, lending bankers have no reservations about acting as a monitoring agency.
R Sharma, Meerut
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