Reduction in IPO timeline to save Rs800 crore, says CRISIL
April 19, 2010
Ratings agency CRISIL said it expects the reduction in the time between initial public offering (IPO) and listing to 12 days from 22 days will lead to interest savings of about Rs800 crore annually for retail and high net worth individual (HNI) investors.
Earlier this month, market regulator Securities and Exchange Board of India (SEBI) cut the time between IPO and listing to 12 days in an aim to make the existing public issue process more efficient.
“SEBI’s move to cut the time frame between IPO closure and listing will benefit investors participating in the primary market since it will lower the opportunity cost for funds invested in the IPO. Further, the move will reduce the risk of market volatility in the intermediate period and help rotation of investors’ money faster, thereby enhancing the subscription levels in the forthcoming IPOs,” Chetan Majithia, Head, CRISIL Equities, said.
CRISIL Equities estimates about Rs40,000 crore will be raised from IPOs in 2010. To calculate the interest cost savings, CRISIL has used the observed three-year average subscription level of 8 times in the retail category and 28 times in the HNI category from 2007 till date. Based on this, the reduction in timeline by 10 days is expected to translate into interest savings of Rs800 crore annually, at an opportunity cost of 10%.
The directive from SEBI, effective 1st May, is a step towards realigning the Indian market with the best practices in developed markets where the listing timeframe is three days from the closure of issue, CRISIL said.
The timeframe for listing on stock exchanges in developed markets such as the US, UK and Singapore is three days. Even in some emerging markets such as Brazil and Hong Kong, it is three days.
With the recent directive, SEBI hopes to realign the Indian market by gradually adopting practices prevailing in the developed markets. CRISIL Equities expects the timeline between IPO closure and listing to reduce further to around three to five days in line with global practices, the ratings agency added. — Moneylife Digital Team