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BW Businessworld

Sebi Wants Shorter IPO Bidding Period, Faster Listing

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Capital Market regulator Sebi will soon ask companies seeking to raise funds through Initial Public Offers (IPOs) to complete the bidding process within a maximum five days and get listed in another five days. To shorten the entire IPO process, Sebi is also working at faster allotment of shares to investors and reduce the time-gap between closure of issue and final listing from 12 days to five days, a senior official said.

The Securities & Exchanges Board of India has already announced a number of steps recently, after its last board meeting on August 16, intended at reforms in the primary market for the benefit of investors.

On 28 August, Sebi and the Reserve Bank of India allowed partial flexibility in conversion of Indian Depository Receipts (IDRs) into equity shares by investors, while capping the funds to be raised through IDRs at $5 billion. The move is expected to help in attracting foreign entities to list their IDRs on domestic bourses.

Currently, regarding IPOs, Sebi regulations require the bidding period to be completed in a minimum of three working days and a maximum of 10, including the extension given pursuant to a revision in price band by the issuer. However, companies are not allowed to extend the bidding period in case there is no revision of a price band.

Sebi is of the view that a faster and shorter IPO period would "induce greater process efficiencies and enhance the investor confidence in the issue", the official said.

Consequently, Sebi is looking to shorten the bidding period in an IPO to two or three working days in normal cases.

Besides, it would consider granting one extension of maximum two working days, irrespective of whether there is a change in the price band. In case of an extension, all the investors would have the option to withdraw their earlier bids made until the revised issue closure date.

The decisions are being taken by Sebi pursuant to the recommendations given by its Primary Market Advisory Committee (PMAC). The new guidelines would be soon put in place by Sebi.

Some other steps identified by Sebi for the benefit of IPO investors include reduction of time taken after issue closure to the listing date from 12 days to five days in a phased manner, while it would also look at rationalisation of disclosures in the offer documents filed by the companies.

These steps include allotment of a minimum lot of shares to retail investors and setting-up of a nationwide network of brokers to facilitate submission of bid applications through e-IPO process.

Besides, Sebi board in its last board meeting also approved steps for review of the public issue processes and regulatory framework, putting in place a framework for rejection of offer documents and evolving an appropriate mechanism for effective monitoring of issue proceeds.

Sebi has also announced that the companies would have to disclose the price band five days before the issue opening, which is already a practice.

However, regulations require that the companies may announce the floor price or price band at least two working days before the opening of the IPO.

RBI, Sebi Allow Flexibility for IDRs
In 2012-13 Budget, the government had proposed to allow two-way fungibility of IDRs to encourage greater foreign participation in the Indian capital market. On 29 August, Sebi allowed partial flexibility in conversion of Indian Depository Receipts (IDRs) into equity shares by investors.

In a separate circular, the Reserve Bank also said there would be an overall cap of $5 billion for raising of capital through IDRs by foreign companies in Indian markets.

"This cap would be akin to the caps imposed for FII investment in debt securities and would be monitored by Sebi," it said.

The central bank said that the two-way fungibility allowed for IDRs are similar to the limited two-way flexibility allowed for ADRs and GDRS issued by domestic companies in foreign markets.

The two-way fungibility would enable Indian shareholders to convert their depository receipts into equity shares of the issuer company and vice versa.

The fungibility issue is seen as one of the major factors restraining foreign entities from listing their IDRs. So far, only UK banking major Standard Chartered in 2010 has come out with their IDRs.

"Suitable instructions for modifying the existing legal framework governing IDRs, in order to implement the decision to allow redemption of IDRs into underlying equity shares and re-conversion of equity shares of a foreign issuer (which has already listed their IDRs) into IDRs, will be issued separately," the circular said.

Sebi said it has been decided to prescribe a frame work for two-way fungibility of IDRs, to improve the attractiveness and long-term sustainability of such instruments.