Investment bankers generally laugh all the way to the bank once shares get listed on the bourses, but they may have to hang around a bit longer. The Securities and Exchange Board of India (Sebi) is planning to make the bankers managing an issue responsible for the end-use of issue proceeds.
"The regulator is planning to put the liability of overseeing the utilisation of the issue proceeds on the book running lead managers (BRLMs). Merchant bankers may have to submit a quarterly report to Sebi on the status of the proceeds for a period of up to one year after raising the money," said a person familiar with the development.
A senior Sebi official said the entire IPO process was being relooked at and it would not be possible to share specific details.
The move is seen as direct fallout of the recent Sebi probe wherein several companies were found misusing or diverting issue proceeds.
Besides banning promoters of seven companies, the regulator has also suspended three BRLMs from undertaking any new share sales.
These include PNB Investment Services, the merchant banking arm of state-owned Punjab National Bank, Atherstone Capital and Almondz Global Securities.
What triggered the move?
- In December, promoters, book-running lead managers among the 100 entities found violating IPO rules
- Wide price fluctuations on listing of seven companies
- Funds siphoned through inter-corporate deposits
- Diversion of IPO proceeds from what was stated in the offer document
- Inadequate documentation
"The regulator wants more scrutiny from the merchant bankers post-issue as well," said the person quoted earlier. "It wants the BRLMs to perform better due diligence and might hold them responsible if there are any such diversions in future," he added.
The overhaul of the IPO guidelines is aimed at reducing the time taken, simplifying the process and improving the disclosure norms in a bid to restore confidence among retail investors. Sebi is holding discussions with the various intermediaries involved in the IPO process, including BRLMs, registrars and stock exchanges.
The regulator has sought feedback on wide-ranging topics from intermediaries and also the industry body, Association of Merchant Bankers of India.
"Keeping a record of IPO proceeds is going to be difficult as the money lies with the company. The information has to come from the company or its auditors," said a senior executive with a foreign investment bank, who didn't wish to be named.
The money raised by way of a public issue is initially kept in an escrow account and once the refunds are made, the money gets transferred to the company's account. If the company wants to change the utilisation of funds, it needs to get shareholders' approval.
Merchant bankers say keeping a tab on the issue proceeds is a tough ask as their involvement is largely restricted till listing. It may require building a separate compliance or audit team, which may even increase the issue management and underwriting fees, they say.
The average commission for underwriters in India is among the lowest in the world. In 2010, which was a record year for fund-raising, average fees in India were just 0.92 per cent of an IPO's proceeds compared with about 3.50 per cent in the US and China. The Sebi chairman had said at an event last week the new regulations would be introduced in a few months.