The Securities and Exchange Board of India (SEBI) will soon release fresh guidelines on the disclosure for initial public offers (IPOs) of real estate companies. With the overwhelming responses of the reality company IPOs, the market watchdog is looking at fresh set of norms in term of disclosures so that shady companies should be discouraged.
According to highly placed sources, the SEBI Primary Market Advisory Committee, is expected to discuss matter and most may suggest a formation of committee to come out with a restrictions to prevent any potential manipulation in the future.
The 12 members committee is scheduled to meet on January 3. In 2007, the IPO market is expected to dominate by the reality companies as many companies who have made huge commitment for building land banks are in the midst of mopping huge money, said another member of the committee.
"In the last meeting of the primary market advisory committee, some of the members raised concerned on the emerging trend and had apprehended that some stringent disclosure norms should be formulated on the line of the special disclosure norms for the informational technologies companies formulated in 2000," said a senior member of the committee.
Sebi has informally asked some of the leading investment bankers to give their opinion on how to strengthen the guidelines. As per the conservative estimates around 25-30 real estate companies are currently in discussions with investment bankers to mop up over Rs 15,000 crore from the capital market in 2007. The number may go up further, sources in investment banking said.
The committee members includes HDFC chairman Deepak Parekh, BSE managing director Rajnikant Patel and NSE Managing director Ravi Narain, JM Morgan Stanley chairman Nimesh Kampani, Crisil managing director Ravi Mohan, ICRA managing director PK Choudhury, Prithvi Haldea managing director of Prime Prime Database besides others.
Currently most of the companies in the real estate sectors are primarily valued on the basis of their land banks and not on account of annual revenues. There are many good companies in real estate sector who wanted to list but at there are possibilities that investors can be taken for ride in future by fly-by-night companies who wanted to ride the boom, cautioned a committee member.
Citing the case of recent IPOs by Parsvanth Developers and Sobha Developers, sources in SEBI said these companies besides the existing listed entities like Unitech, are current trading at exorbitant premium in comparison to the other sector. "In such a situation, there are possibilities that investors can be taken for ride on the name of the real estate companies. In the IT boom of 2000, many companies changed their name to allure the investors," the committee members said. The public issues of Parsvnath Developers and Sobha Developers were oversubscribed by more than 50 times and 108 times, respectively.