The Hindu Business Line : Bloated IPOs

Some of the recent initial public offerings which attracted heavy over-subscription raises some questions on the efficacy of price-discovery through the book-building route, besides leading to doubts on the hype created by vested interests.

At the end of all this hyperactivity, investors get a paltry allotment. There is need for some restraint on the tipsy influence which the large oversubscriptions generate.

In this regard, I suggest three measures:

SEBI should require the Qualified Institutional Investors (QIBs) to put in 20 per cent amount upfront as against 10 per cent with their bids;

A similar facility should be given to high net-worth category investors who now put in 100 per cent, but with the condition that they cannot withdraw their bids after the issue is closed till allotment, as is now permissible; and

The issuer, in consultation with the stock exchanges, should have the discretion to pre-close the issue after two days, provided the issue is fully subscribed under QIBs, HNIs and retail categories.

These measures balance the need for price discovery through market forces and moderating the euphoria.

P. V. Maiya Bangalore