Sebi forms new group to review IPO process: Report

The market regulator has also written to the Association of Investment Bankers of India seeking comments on issues

Markets regulator Securities and Exchange Board of India (Sebi) has formed an expert group to review and alter the initial public offering (IPO) prcing process in India, as the regulator found many issues in the present system, sources told Business Standard.

Sebi feels that the procedure has been reduced to a theory by companies as the actual pricing is decided much before the IPO, sources told the publication.

“The difference between the upper and lower end of the price band is just one rupee in many cases. Moreover, anchor investors are allotted shares before the formal book-building process begins. All this makes the process look meaningless. There is hardly any price discovery happening during the IPO,” one of the sources is quoted saying.

The new panel, a sub-group of Sebi's primary market advisory committee, will therefore suggest ways to overcome these shortcomings and study the influence of institutional investors in the pricing process and the mandated price bands for companies.

The market regulator has also written to the Association of Investment Bankers of India seeking comments on these issues.

Under the current book-building process, investors put in their bids and the average price becomes the final price, which is also called the cut-off price. The difference between the upper and lower end, called price band range, cannot be more than 20 per cent. Experts have said that investors conduct roadshows and decide the price much before this process, rendering it irrelevant.

The expert group has been entrusted with the responsibility of reviewing what is called the French auction pricing methodology, wherein a base price is set and investors bid above it. Market participants have deemed the process more efficient.

Despite the gloom and doom one sees on the ground, the trend of companies raising funds in the primary market through Initial Public Offerings (IPOs) is set to hit a record in 2021. So far in 2021, 27 companies have raised nearly Rs 41,299 crore – which is more than what was raised by way of IPOs in each of the last three years – 2018, 2019 and 2020.

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