Will buy up to 1,000 shares from original buyers if stock dips below offer price

After a gap of almost 7 years since the IPO of Usher Agro came out with a ‘safety net’ in 2006, another company Sai Silks Kalamandir launched its Rs 89 crore IPO with the same feature on Thursday.

Despite the market regulator SEBI floating a discussion paper on introducing a safety net feature in IPOs last year for protection of retail investors from post-listing price crash, there have been no takers for it.

However, according to the merchant bankers of Sai Silks Kalamandir, Ashika Capital and Vivro Capital Advisors, the decision to introduce the safety net feature was taken given the promoters confidence in the issue.

Buy-back arrangement

Under the safety net feature which is open only to original resident retail individual allottees, if the market value of the equity shares falls below the issue price at any time during six months from the date of credit of the equity shares in the demat account, the promoter and promoter group would buy the original allotted equity shares at the issue price from the eligible allottees up to a maximum of 1,000 equity shares per eligible allottee.

Rajendra Kannonga of Ashika Capital said: “In addition to the safety net feature, we have increased the share allocation in the retail category in the IPO and kept it at 55 per cent to give maximum benefit to this category.”

The Hyderabad-based company, which is primarily into women’s ethnic wear business, presently operates a total of 16 retail outlets covering an area of 1.47 lakh square feet.

The IPO issue which has been priced in the range Rs 70-75 will remain open from February 11-13. According to the company’s promoter Prasad Chalavadi, the proceeds from the IPO would be utilised for additional four outlets to be opened, brand promotion activities, term loan repayment apart from meeting working capital needs of maintaining its inventory.




(This article was published on February 7, 2013)
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