Sebi mulls hike in 10% margin for FIs

Mumbai: Stock markets regulator Sebi could soon ask institutional investors to cough up more than 10% of a public issue subscription upfront. This is a follow through of the market's tepid response to the two high-profile issues—including NHPC and Adani Power—that debuted recently.

Both issues, like the Oil India IPO that closed on Thursday, saw large oversubscription. While Oil India was oversubscribed 31 times, NHPC was 24 times and Adani 21 times the offer. But on listing, they could not hold the premium. Adani Power and NHPC recorded listing gains of only 0.05% and 1.94%, respectively. This has been ascribed to the pricing of the issues.

Since institutional investors put up only 10% of their subscription upfront, they are happy to exit with even a thin gain on listing. The government plans to go for several disinvestments this fiscal, but if retail investors are not convinced they would gain from the issues, the pipeline could get choked.

Hence, a key Sebi committee is likely to recommend that qualified institutional buyers (or, QIBs) that invest in public offers shell out more at the time of application. The Primary Markets Advisory Committee, which met on Thursday, would be making this suggestion to Sebi.

The committee, chaired by Deepak Parekh, also noted that the timeframe for public issues should be reduced. This would also cut down on the grey market that springs up around high-profile issues.

According to a member of the committee, who spoke on the condition of anonymity, there were however differences on the size of the increase. The committee would regroup in October to gather feedback on the subject.

"It becomes easy for QIBs to participate in an issue with a low upfront commitment. And even a 5% to 6% gain on listing day can get them a strong return," says a merchant banker with a leading institution. Both the issues had allocated 60% of the issue to QIBs.