The Hindu Business Line : Safety net mechanism

Shares of five companies out of the nine that hit the market during the last three months are languishing below their IPO prices. Can anything be done about it?

Shilpa Suri, New Delhi

There is one thing that can be done. And that is called safety net mechanism which at present is optional. Under it, company promoters can bind themselves to buying a maximum of 1000 shares per retail investor should the market price of the shares offered on IPO to them dip below the offer price during the first six months of listing. The optional regime should be converted into a mandatory one.

This would not only bring about a sense of responsibility on the promoters but also make them go slow on accepting mind boggling premiums supposed to be discovered by the book building mechanism. Either this or the government must mandate payment of minimum user charges on premium charged which once again would apply brakes on promoters’ vaulting ambitions.

Eminent domain

What is eminent domain?

Kodha Rangachary, Srivilliputtur

Strictly speaking, it is the right of the government and its agents to expropriate private property for public good subject to payment of compensation. But in its broad sense, it also represents government’s right over all properties except those acquired by individuals and businesses and others under the due process of law.

That is why the government has inherent right in the airwaves and minerals and mineral oils, and has the right to insist on receiving its share of profits when these are allowed to be worked by private parties.

The revenue-sharing agreement with telcos and production-sharing agreements with oil explorers are rooted in this principle. Eminent domain of course should not be a stumbling block in development which could happen if the principle is applied in its narrow sense to mean government sitting tight on all properties. Fuelled further by xenophobia, such an approach can keep a country in perpetual poverty. The oil rich gulf region would not have prospered had it not invited the American and European oil companies to explore and extract the oil Mother Nature had blessed it with in such abundance.

S. MURLIDHARAN

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