SEBI's Auction Move on FPOs Impresses Marketmen :)

 

SEBI's Auction Move on FPOs Impresses Marketmen

SEBI’s has planned to remove the cap price for the follow-on public offerings and this idea seems to be impressing market players.

SEBI has said that  it would introduce “pure auction as an additional book building mechanism for institutional investors for follow-on public offerings (FPOs).”

Analysts and market men feel that this is going to generate loads of excitement and fun for market players, as those investors who are convinced about a particular issue will invest at a higher price to seek allotment and those not-so-convinced can invest at a lower price.

Merchant bankers said it will be interesting to see how this will work as there are a few PSU FPOs likely to hit the market soon.

PSUs likely to come out with FPOs include NMDC, MMTC, Neyveli Lignite Corporation, Rashtriya Chemicals and Fertilizers, National Fertilizers, Coal India and Engineers India

As of now, the IPO price is determined through a price band (which has a lower and upper level).

An auction or floor price is the minimum price at which bids can be made for an IPO.

Meanwhile, merchant bankers welcomed SEBI’s announcement on Monday that exchanges could have a separate platform for Small and Medium Enterprises (SME).

As the primary market size grows, the smaller companies are getting lost amid the big ticket IPOs.

Having such exclusive guidelines for SMEs is definitely a good idea, said merchant bankers.

SME platform SEBI on the lines of the AIM on the London Stock Exchange will be better.

Those SMEs with a paid-up capital of between Rs 10 crore and Rs 25 crore have an option of either being on the SME exchange or the main bourses.

According to the new guidelines, SMEs should have a maximum paid up capital of Rs 25 crore for listing.

For an investor the minimum application size in an SME IPO will now be Rs 1 lakh.

Though such a limit might seem like it will prevent the retail investor of small means from investing in SME IPOs, merchant bankers said that it is a good move.

“This will allow retail investors to take more informed decisions. It will protect these investors as the chances of manipulation with respect to smaller companies are much higher. Those investors with the right amount of knowledge and liquidity will be the ones investing in these IPOs,” said Mr Jagannadham Thunuguntla, Head of Equity at SMC Capital.

Having the merchant bankers underwriting the IPO will make sure that they price the issue properly and also provide proper valuations.

Merchant bankers are also happy that for an SME issue the minimum number of investors is only 50 for a particular issue.

“For an issue, as of now, there has to be a minimum of 1,000 investors,” said Mr Thunuguntla.