SEBI Will Address The Matter Of Execessive IPO Valuations: Buch

Buch noted that to encourage investors to invest in less known firms’ public issues, the issuers and their investment bankers give low face value while the issue itself is kept at a high price.

The Securities and Exchange Board of India Chairperson, Madhabi Puri Buch, said on Saturday that the market regulator will address the matter of excessive valuation of initial public offerings, with a number of issues launching in the market this week. 

Addressing the issue of high premiums for some shares in IPOs, the official said, “ Of course, we are fully with you on this as the rationale given for high premia are nothing but some meaningless English words. We are certainly going to look into it and address the issue,” reported PTI. 

The regulator’s official noted that to encourage investors to invest in less known companies’ public issues, the issuers and their investment bankers give low face value while the issue itself is kept at a high price, citing an extremely high premium. Buch shared these opinions while addressing the reporters after Sebi’s meeting on Saturday. 

Notably, last week saw five firms including Tata Technologies open their IPOs for bidding which collectively saw a record Rs 2.6 lakh crore in application amount. 

Buch further noted that it is not the job of the regulator when asked if Sebi plans to suggest issuers and other stakeholders maintain more space between issues. “After all, timing the market is not our job. We want to leave issue timing to the market. Else that will be unfair on our part as a Sebi mandated time may not be the best for the issuer and the investors. A company comes to the market to raise money at a time that's best suited for them. Also, we aren't worried about the issue scrambling as from a regulatory perspective our job is to ensure that the system can take the load which our market is doing perfectly well,” she said. 

When asked whether Sebi will permit a green-shoe option as allowed in other market activities where the issuer is given the choice to retain over subscription to a relatively larger amount, Buch stated that the answer remained in negative, as it needed to be addressed from a practical point of view. “From the practical side, it is possible but from a conceptual angle this is not possible as unlike a debt issue or any other market instrument wherein there is not equity dilution, in an IPO it precisely is equity issue. So if we allow a green shoe option it will lead to an undesired dilution of equity which and other implications,” she said.