Financial Daily from THE HINDU group of publications
Saturday, Aug 27, 2005
Investment bankers express fears of fall in post-IPO price SEBI decision on proportionate allotment
Mumbai , Aug 26
INVESTMENT bankers have said that the SEBI's decision to make proportionate allotment to institutional investors in public issues could affect the post-listing price of shares.
They have also expressed concern over the quality of investors who will bid in IPOs. However, they are not opposed to the 10 per cent margin money that institutional investors have to pay.
Some investment bankers said that the new norms are different compared to those prevalent in the rest of the world.
An official of a US-based investment bank operating in India said: "Proportionate allotment will impact the post-listing price as several short-term investors within the QIB category will try to book profits on listing. Hedge funds are short-term investors and they sell on good gains on listing, and if they get same shares as long-term investors, the stock price will fall on listing and this would affect the returns to investors."
There is also concern over the quality of investors who will participate in the IPO. Investment bankers said that they prefer to allot more shares to long-term investors.
The investment community has been raising questions over the share allotment procedures being followed in the QIB category. Investment bankers are alleged to have been giving preference to FIIs over Indian institutional investors.
Mr S. Ramesh, Executive Director of Kotak Investment Banking, said: "It is a new framework for doing IPOs and issuers and merchant bankers will have to await pricing and demand strategy from QIBs going forward."
He said that currently the liquidity in the market is high and therefore QIBs may not mind paying the margins prescribed by the SEBI.
The guidelines, which prescribe five per cent allotment to mutual funds, would indirectly benefit retail investors who subscribe to these mutual funds, he added.
Mr Hemang Raja, Managing Director of IL&FS Investmart, said: "These changes were expected and people were mentally prepared for this. I don't see any major problem due to these changes." He added that the allotment procedure will now become mechanised and that the SEBI decision should benefit the shareholders of companies.
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