The Hindu Business Line : By the letter and spirit of prospectus

Of late there have been repeated, and often exaggerated, reports about a company and its outlook in the media, both electronic and print, in the run-up to the initial public offering of shares. Seasoned institutional investors may shrug off the reports as of little consequence. They, after all, account for the bulk of the shares, often in the region of 65 per cent, on offer. Qualified Institutional Buyers (QIBs) are unlikely to be swayed by any tall reports of the company's prospects. More so, as companies seeking to list any way bare their chest behind closed doors to the QIBs. Obviously, then, the media hype is whipped up only to sweep the retail investors off their feet.

In the aftermath of the primary market fiasco in the mid-1990s, the Securities and Exchange Board of India had tightened the advertising norms. Anything not contained in the prospectus, it was ordained, could not be carried in the advertisements in the run-up to the issue. This salutary edict is brazenly flouted through advertorials and media hype.

SEBI should nip this practice in the bud. The onus should be cast on the media to explain the source of its hype. If the source is not the prospectus, obviously the stuff carried should be presumed to be bluff and bluster.

Under SEBI's penetrating gaze prospectuses, like mirrors, cannot lie. Hence, the touching faith in them. Prospectus is the only document that is vetted by the market watchdog. It, therefore, ought to be the only medium through which a company seeking to list can sell its shares. Even the company law prescribes stiff penalty for misinformation and other misdemeanours with reference only to the prospectus. No one should, therefore, be allowed to break free of the prospectus and cut loose.

(The author is a Delhi-based chartered accountant.)

S. Murlidharan

More Stories on : Insight | IPOs | Corporate Governance

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page