Investors in India may be able to apply for shares in a public issue and yet hold on to their application money till shares are allotted if a proposal the market regulator is considering gets approved. The Securities and Exchanges Board of India is working on developing a system where the money is deducted from the applicant’s bank account only on allotment of shares, the chairman CB Bhave said on Tuesday.
The recent public issue of Reliance Power was oversubscribed 73 times. The company refunded around Rs 1 lakh crore after allotments. This money trapped in the system was not available for investors for almost a month and contributed to the liquidity crunch that the markets faced.
Bhave said that the Securities and Exchange Board of India (SBI) is focusing on changing the initial public offer process so that retail investor' funds are not blocked for a long period. “It is our belief that with the available banking technology it is possible to earmark the amounts in investor's account itself and not have the money transferred,” Bhave said while speaking at an IPO conclave in Mumbai on Tuesday.
At present retail investors pay the entire subscription money on application whereas the qualified institutional bidders – financial institutions - pay only 10 per cent. The Reliance Power issue had set the application amount for retail investors at 50 per cent. The regulation right now says the issue process has to be completed within 21 days from the date of the issue closure and money has to be refunded to investors.
SEBI is also looking at ways to shorten the issue period from 21 days from the close of issue to seven days. Speaking on the issue, Prithvi Haldea of Prime Database said: “One of the earliest reforms I look forward to from SEBI is on the IPO process.”
{{/usCountry}}SEBI is also looking at ways to shorten the issue period from 21 days from the close of issue to seven days. Speaking on the issue, Prithvi Haldea of Prime Database said: “One of the earliest reforms I look forward to from SEBI is on the IPO process.”
{{/usCountry}}Haldea said the issue process can be shortened to seven days and one can also look at pre-funded instruments (like bank drafts) to cut down the three to four day’s time it takes for cheque clearing.
The instrument could be akin to the erstwhile Stockinvest instrument but this would be an electronic Stockinvest where there is no issue of refunds, Bhave said. In a Stockinvest, the investor had to buy it and the money would lie frozen in his bank account till allotment. But on allotment the partial refunds had to be generated and posted physically. In an electronic Stockinvest format, there would only be a freeze on the amount and it would be lifted on allotment and there is no issue of refund generation, Bhave explained.
Others reforms that are expected in the IPO process are 100 per cent subscription money upfront from QIBs, increase in dilution of equity by promoters from existing 10 per cent to 25 per cent, a separate platform for SME listing and hard underwriting (when the issue is fully underwritten at a fixed price) back in some form, said Haldea.