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Fixed portion of IPOs for retail investors urged

Janaki Krishnan & Sangita Shah

Merchant bankers have told the Securities and Exchange Board of India that initial public offerings, which are being made through the book-building route, should have a fixed price portion for the benefit of retail investors who do not understand the mechanics of the book building process.

The suggestion came up at a recent meeting of merchant bankers' with the new Sebi chairman G N Bajpai on the ways to restore investor confidence and bring back the retail investor to the equity market.

While Sebi officials were not available for comment, sources said the issue was one of the things which had come up for discussion at the meeting. Sebi is understood to be mulling over the issue.

Bharti Televentures had floated the first IPO through the 100 per cent book-building route earlier this year.

While retail investors did subscribe to the issue, sources pointed out that their participation was relatively low.

"Look at the Punjab National Bank issue - the number of retail investors was more than four times that in Bharti," sources said.

The i-Flex Technologies IPO, the next big IPO in the pipeline, will also be a 100 per cent book building offering, according to the prospectus filed with Sebi.

Book building as a way of issuing equity shares gained currency in 2000.

The book-building portion was for institutional investors, while there was a fixed price portion to which the retail investors could subscribe.

However, Sebi changed the regulations to facilitate 100 per cent book building in line with international norms.

According to merchant bankers, "In more advanced markets there is very little retail participation and it is mostly the institutions which subscribe."

In India, primary equity offerings are a preferred investment vehicle for small investors, which, merchant bankers feel, should not be discouraged.

"Small investors still do not understand the mechanics of the process and we feel they are not ready for it," sources said.

Bajpai, soon after taking charge at Sebi, had said that restoration of investor confidence - especially among retail investors - will be his biggest priority.

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