Investors can place bids in public issues at a discount

MUMBAI: Retail investors will be able to buy more shares of companies in public offerings, with the Securities and Exchange Board of India (Sebi) al-lowing them to place bids at a discounted price, instead of paying the full amount.

In the recent past, most state-owned companies which had launched either an IPO or a FPO had offered a 5% discount to retail investors. But the impact of such a differential pricing is felt by retail investors only at the time of allotment of shares and not at the time of filing an application. That is because investors have to pay the full amount up-front. Issuers refund the differential because of a discount only after the pricing is finalised.

"This takes away certain benefits from the investors such as lower cash outflow at a price net of discount and the ability to apply for more shares with the same cash outlay," Sebi said in a statement posted on its website on Wednesday.

A few bankers and analysts said that the Sebi move was investor friendly and will do away with the refund process, after the recent decision by the regulator to raise the investment limit to 2 lakh for retail investors. "Investors would block their money only for the discounted amount and they can now apply for greater number of shares," said Prithvi Haldea, managing director of Prime Database and a former member of Sebi's primary market advisory committee. "Issuers will benefit as the number of shares applied will go up," he said.

The regulator said merchant bankers will have to disclose the discounted price for retail investors in rupee terms and not in percentage in the offer document and application forms. They will also have to clearly disclose under what circumstances application for shares would be liable for rejection in case of errors. Investment bankers are worried about how to implement this proposal and on creating awareness about this among investors.

"This circular is taking care of only the top end of the band, pricing can happen at any point. Pricing is dynamic, this is not a very practical proposal and will take some time to settle," said a senior investment banker who declined to be identified.

The 6,000-7,000-crore SAIL follow-on offering, which is likely to hit the market next month may be the first issue where the discounted price would be disclosed in the offer document, said a banker handling the issue. Stock exchange platforms and syndicate banks, where bids are logged in, will have to change their software by making provisions for discount adjustment.

Registrars, who handle public offerings, say 30% of the retail applications for public offerings has been coming through Application Sup-ported by Blocked Amount (ASBA) - wherein the investors' application money will be debited from their bank account only after the shares are allotted. While 95% of the qualified institutional buyers and high net worth individuals bids come through ASBA.