The government is talking to market regulator SEBI for evolving guidelines for price band for public offers by India Inc to make the process transparent and ensure funds are not diverted.
Asked what steps government could take to prevent companies from fixing arbitrarily IPO price band at a very high level, Corporate Affairs Minister Salman Khurshid said, “We are examining it, some very good people with experience of capital market are helping us on this.
“This is a matter in which we are in close consultation with SEBI...It will take 3-4 months, may be six months (to come out with the guidelines).”
On some kind of limits on fixation of price bands by companies, the Minister said: “We are looking at how there can be greater objectivity and transparency... (when) we get the suggestions that we are seeking, (we) would narrow down the options.”
Pointing out that misuse of money collected through IPOs was within the purview of Corporate Affairs Ministry, he said “that is something we are very careful about and keeping ourselves very alert...Early Warning System (being evolved by the MCA) will watch the misuse of IPO money.”
As per the current practice, the final price of IPO is arrived after a book-building process, the base for the same is the price band that is announced by the companies before the start of the public issue bidding process.
In absence of any guidelines, companies raising funds fromthe public through IPOs fix the offer price on their owndepending on their perception of the demand for shares and appetite of the market.
The price band is generally suggested by the investment bankers to the companies, but reasons for the same are notdisclosed, except for the cases where pre-IPO private placements take place.