Sebi makes QIB participation in IPOs mandatory

Market regulator Securities & Exchange Board of India (Sebi) has made it clear that it will not permit any spillover from the retail category to qualified institutional buyers (QIBs) category in initial public offerings (IPOs) henceforth.

Simply put, any public offering from now on will need compulsory participation from QIBs, which among others include foreign institutional investors (FIIs), mutual funds and insurance companies.

The move was suggested after a lot of IPOs last year saw zero participation from institutional investors, and wherever filled, it was only on the back of retail subscription. Also, some of these IPOs were later banned by the market regulator for irregularities and violation of norms.

If an IPO fails to generate a minimum of  65 per cent demand for QIBs and HNIs, either the issue will have to be withdrawn or will have to be underwritten by the merchant bankers.

This new norm comes into effect after Sebi amended the Issue of Capital and Disclosure Requirements (ICDR) on October 12.

Under earlier rules, spillover from one category to another was permitted to the extent of under-subscription in that category. At least four IPOs had seen no bids from QIBs last year and the issues managed to sail through just on the back of oversubscription in the retail segment.

Further, Sebi has also redesigned the profitability criteria for companies wanting to tap the capital market. Corporates will need to have a minimum average pre-tax operating profit of Rs 15 crore in three of preceding five years.

If companies fail to meet this criterion they will need an increased QIB participation of 75 per cent as against the existing 50 per cent in IPOs or will have list on the SME platform.