Initial Public Offering and Differential Voting Rights

Topics: Initial public offering, Stock market, Stock Pages: 9 (3461 words) Published: March 2, 2013
“Review of SEBI (DIP) Guidelines 2000- Proposals - Series I” A. Recommendations made by the Primary Market Advisory Committee

SEBI has constituted a standing committee, chaired by Shri M S Verma, Chairman, TRAI. This committee comprises representatives from ICAI, ICSI, investor associations, merchant bankers, Industry associations, Ministry of Finance etc. The terms of reference of this committee are as follows : 1. To advise SEBI on matters relating to regulation of intermediaries for ensuring investor protection in the primary market. 2. To advise SEBI on issues related to development of primary market in ndia. 3. To advise SEBI on matters required to be taken by for changes in legal framework to introduce simplification and transparency in the primary market. This committee meets at regular intervals and makes recommendations to SEBI. The committee had received several representations from merchant bankers and other participants in the primary market regarding the various changes required in the SEBI (Disclosure and investor Protection) Guidelines, 2000, in order to make it more market/investor friendly. The committee discussed these suggestions and has made the following recommendations to SEBI : (I) Provisions relating to Book Building I (1) Requirement to mention floor price in the Red Herring Present Position The company is required to disclose the floor price in the Red Herring Prospectus to be submitted to RoC, at least 3 days prior to the bid opening date, as per Clause No. 11.3.1(vii)(a) of SEBI (DIP) Guidelines, 2000. Recommendation The company may be allowed to disclose the floor price, just prior to the bid opening date, instead of in the Red herring Prospectus. This may be done by any means like a public advertisement in newspapers etc. Rationale As per provisions of section 60B (2) of Companies Act, 1956 Red Herring prospectus is to be filed with ROC at least 3 days prior to the bid opening date. That means issuer company has to disclose the floor price prior to atleast 3 days of the bid opening date. In a dynamic market scenario, the companies do not like to indicate a floor price too much in advance to the bid opening period, as the market conditions may change, requiring the company to revise its floor price downwards, which may not be possible in case the floor price has been frozen in advance. I (2) Moving price band Present position

As per Clause No. 11.3.1(vii)(a) of SEBI (DIP) Guidelines, 2000, Red Herring prospectus has to disclose the floor price (i.e. the price below which the issuer is not willing to ‘ .) Disclosure of “price band” is not allowed. sell’ Recommendation SEBI may consider providing flexibility to the issuer company by permitting them to indicate a 20% price band ( Flexibility of moving the price up and down). Issuer may be given the flexibility to revise the price band during the bidding period. Rationale The committee felt that indicating a floor price defeats the very purpose of book building, as the investors tend to bid at or around the floor price. The price band may be allowed to be moved upwards or downwards, depending on the direction in which the book is being built. The moving price band coupled with a closed book building will help in real price discovery. I (3) Closed Book building Present position As per clause 11.3.1, the issuer/merchant banker(s) are required to ensure online, real time graphical display of demand and bid prices at the bidding terminals, during the bidding period. The book running lead manager is also required to ensure the availability of adequate infrastructure for data entry of the bids on a real time basis. Recommendation The issuers may be allowed to have a closed book book-building i.e. the book will not be made public and the applicants will have to take a call on the price at which they should make the bid, without having any access to information regarding the bids made by other applicants. Rationale The committee was of the view that...
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