As IPO street dries up, Sebi asks investment bankers to get pricing right

Capital markets regulator Sebi Tuesday voiced concern over the slow pace of primary issues, despite a good market condition, and asked investment bankers to do more "diligence" on the pricing front to get investors in.

Tyagi was talking to Prithvi Haldia, a member of the SEBI's Primary Market Advisory committee, at an event organised by the Association of Investment Bankers of India.

Chairman Ajay Tyagi said Sebi has given a go-ahead to initial public offers (IPOs) worth over Rs 60,000 crore in 2018, but many of them are yet to hit the street.

Till end October, 24 companies raised Rs 30,959 crore through IPOs but most of these were till the March quarter.

Last year was the best in terms of IPO fund-raising, as the IPO market jumped to an all-time record of Rs 67,147.4 crore in fresh fund raising by over 120 companies, according to data from Prime Database.

In contrast, small and medium enterprises companies raised double the amount as compared to previous year. In 2017, SMEs raised around Rs 800 crore. This has increased to approximately Rs 1500 crore this year.

When asked if the issue is pricing, he asked i-bankers to do more "diligence" while setting a price that will be acceptable to both the issuers as well as investors.

"Merchant bankers have a role to see that an issue is reasonably priced and which is acceptable to both issuers and investors," Tyagi said.

The Sebi chief seemed to suggest that domestic market conditions are better as compared to global peers, with firm macroeconomic fundamentals.

For increasing investor interest in lower-rated corporate bonds, the government is set to fulfill its FY17 budget promise of having a credit enhancement fund, he said, adding the fund will have an initial corpus of Rs 500 crore and there is a need to look at expanding the fund size.

Tyagi said masala bonds has not picked up as much as we would have liked it to have because of taxation issues.

Tyagi added that he is against the forced listing of multinational companies on our exchanges, he said at the same time, he would welcome a policy regime that encourages such companies to raise funds from our primary markets.

He said the 30 state-run enterprises are yet to meet the mandatory 25 percent public shareholding norm and once they hit the market, and once they meet that lower ceiling, there will be more quality scrips for the investors look at.

Tyagi also said he is personally uncomfortable subsidising retail investors for better participation.

On the insider trading front, Tyagi said there is a need to do more as till date there has not been a single conviction in any of the probes it initiated. The regulator is also increasing its technological capabilities to check insider trading, he added.

Tyagi said the insurance watchdog IRDAI has "some issues" with the stewardship code on investment disclosures by financial sector companies floated by Sebi at the Financial Stability and Development Council and added that the pension fund regulator PFRDA is agreeable on the idea.

Talking to reporters later, he said showcause notices have been issued to three credit rating agencies who had ratings on IL&FS and also revised the norms and guidelines governing their functioning.

- With inputs from Moneycontrol's Tarun Sharma