Securities and Exchange Board of India chief Madhabi Puri Buch said on Saturday the regulator would certainly address the issue of inflated valuation of IPOs as a series of share sales hit the capital market.
This week, five companies, including Tata Technologies Ltd., floated their initial public offerings, raising a record Rs 26,000 crore in filings.
Responding to a question about the high premiums for some stocks in IPOs, Buch said: “Of course we completely agree with you on this point, as the reasons for the high premiums are nothing more than a few meaningless English words.”
“We will definitely look at it and address the issue,” she said while briefing reporters after the SEBI board meeting here.
It can be seen that in order to increase investor interest in IPOs of little-known companies, issuers and their investment bankers declare a low par value, but price the issue high and declare a very high premium.
On whether SEBI plans to advise issuers and other market makers to allocate their issues in a more timely manner and with enough gaps between two issues, Buch said that this is not the regulator’s job. “After all, timing the market is not our job.”
“We would like to leave the issue date to the market. Otherwise, it would be unfair for us as a timing prescribed by SEBI may not be the best for the issuer and investors. A company comes to the market to raise money at the best time for them.”
“Moreover, we are not worried about the problem, since from a regulatory point of view our job is to ensure that the system can handle the load that our market can handle perfectly,” she said, adding that expanding institutional capacity is not a problem at all represents problem. “At least we haven’t noticed anything negative in this regard so far,” she said.
When asked whether SEBI will allow a greenshoe option as is permitted in other market activities where the issuer has the freedom to retain a significantly larger subscription amount, she said the answer is “No” as it is done by a needs to be clarified from a practical and conceptual perspective.
“From a practical point of view it is possible, but from a conceptual point of view it is not possible because an IPO is precisely an equity issue, unlike a debt issue or other market instrument where there is no dilution of equity. So if we allow a green issue “The option of a shoe option will result in undesirable equity dilution, which has and other implications,” she said.
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