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  • SEBI Chairman Ajay Tyagiurged merchant bankers to engage in wider consultations and maintain a balance between issuers’ aspirations and investors’ interests.
  • Listing prices of a few IPOs saw a steep slump as compared to their issue price.
  • It may be an opportune time for AIBI to reflect upon and review the standards of due diligence adopted by merchant bankers, he added. 

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SEBI Chairman Ajay Tyagi on Wednesday said it was incumbent upon the merchant banker community to not only follow the regulations in letter but also in spirit as he emphasised that appropriate pricing is crucial for public issues.

While urging merchant bankers to engage in wider consultations as for a proper balance between the issuers’ aspirations and investors’ interests, he also said that “needless to say, Sebi will not shy away from taking required action if it finds any intermediary not adhering to its mandate”, seeking to send out a strong message.

His remarks assume significance against the backdrop of instances of prices of shares slumping steeply at the time of listing compared to the price at which they were sold in initial public offerings (IPOs).

Recent IPOs like Shriram Properties, RateGain Travel, One 97 Paytm got listed below their issue price and this caused huge losses to investors.

The Sebi chairman has also listed out the responsibility of merchant bankers that includes protecting the interest of investors, conducting business with fairness and integrity, ensuring true disclosures to investors in a timely manner, so that investors are made aware of attendant risks before making an investment decision.

“It may be an opportune time for AIBI (Association of Investment Bankers of India) to reflect upon and review the standards of due diligence adopted by merchant bankers in various issue management activities offered by them,” Tyagi said.

The ongoing fiscal proved to be a bumper year for the IPO markets as 76 initial share sales raised more than 90,000 crores as of November. Moreover, participation by retail investors in the primary equity market has also jumped.

The number of applications from retail investors in IPOs totalled 5.43 crore so far this fiscal against 3.8 crore in FY21. The average number of retail applications stand at 15.65 lakh for 2021-22 (till November), Tyagi said.

He further said growth in the primary market is accompanied by various challenges, including in the form of non-traditional business models of issuers, disclosure requirements for new-age technology companies and valuation-related apprehensions.

“Typically, the new-age tech companies are loss-making at the time of listing and the extant regulatory framework acknowledges that. Going forward, based on experience gained and stakeholders’ feedback, there would be learnings and the need for appropriate tweaking of regulations,” Tyagi said.

The Securities and Exchange Board of India (Sebi), which came out with a consultation paper in this regard in November, will soon take a view on the issues raised in the paper, he added.

The regulator, in its consultation paper, proposed putting a cap on IPO proceeds earmarked for making unidentified future acquisitions and monitoring funds reserved for general corporate purposes.

Also, the regulator suggested certain conditions for offer-for-sale (OFS) by the significant shareholder and recommended that 50 per cent of the anchor book should be given to those investors who agree with 90 days or longer lock-in.

Notably, 2021 has seen a number of tech-led startups get listed on Indian stock exchanges. A stellar response to Zomato’s IPO and a profitable listing in July has prompted a number of internet-led businesses to make a beeline for this route.

Since then, a number of internet-led businesses, including Nykaa, Paytm and PolicyBazaar, got listed on the exchanges also. However, Paytm, one of the most-awaited IPOs witnessed lacklustre listing and continues to trade below its offer price of Rs 2,150 a share.

Earlier in July, this year he lamented the lack of disclosures by listed firms while speaking at a FICCI event. He said that companies must have periodic disclosures where formats have been prescribed, as well as disclosure of material events where certain events have been deemed to be material and must be disclosed. He said that companies are lacking on both of these disclosures, and though all fields are being filled in, they appear like a check-box exercise. He advised companies to address such issues adequately.

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