New IPO rules just made the process a lot more listless

May 18, 2007
Ashish Rukhaiyar
MUMBAI

INSTANCES of companies having to wait for months to get draft prospectus of their public issues cleared by the market regulator are not rare. It has been a subject of debate that the initial public offering (IPO) system in India is very slow and the Securities and Exchange Board of India (Sebi) needs to amend it. However, the recent amendments in the disclosure guidelines appear to have done just the opposite.

Sebi now has the luxury of a whole month to issue observations on draft offer documents, with an added timeframe of another 15 days, within which to respond to clarifications from bankers. Earlier, there were no firm guidelines as to when Sebi had to respond to bankers’ feedback. Furthermore, Sebi will now issue observations only after the company receives an in-principle approval from the concerned stock exchanges.

On April 30, the market regulator announced a set of amendments to Sebi (Disclosure and Investor Protection) Guidelines, 2000, which includes a clause giving Sebi 30 days to issue the first set of observations on a draft prospectus. Earlier, the regulator had 21 days to send their queries to the merchant bankers.

Although prima facie it is just a difference of nine days, experts are of the view that the amendments, when viewed in totality, are bound to dampen the pace of prospectus clearing process. This is how it works. Once the bankers file their draft prospectus, the regulator gets 30 days to issue its first observation.

After the bankers reply to the queries, Sebi gets 15 days to respond and ask for further clarifications, if any. So every new observation can lead to a maximum delay of 45 days. Interestingly, according to industry sources, the earlier stipulated 21-day period was also not sacrosanct and there have been many instances where Sebi issued observations after the expiry of the 21-day period.

Further, the regulator will not issue any observations till the company gets an in-principle approval from the stock exchanges.