Can SEBI break the cabal of promoters, investment bankers, financiers and manipulators?
Sucheta Dalal
The 20% run-up of Indian stock indices, which has market experts calling a bull market, is a great source of encouragement for the finance ministry, which desperately needs to raise funds. The SEBI (Securities and Exchange Board of India) chairman has got into the act by setting up a committee, under TV Mohandas Pai, to overhaul IPO processes. A situation where 29 IPOs are called off or cancelled requires a serious investigation. But will the committee, packed with intermediaries, consultants, lawyers, industry associations and token investor representatives, identify the problem correctly or simply tinker with processes? So far, under UK Sinha, SEBI has shown no inclination to ask the right questions. His solution, as articulated to a media house, is that he wants to “make fund-raising more efficient by way of cost and time.” But cost and time have never been the problem when investors were subscribing to IPOs and found them attractive. The problem is that companies and investment bankers, hand-in-glove with a set of market operators, dress up prospectuses in order to extract a steep price based on fraudulent or exaggerated valuation from IPO investors and later misappropriate funds with impunity. This is exactly what SEBI’s investigation into seven specific IPO frauds has discovered. Here again, SEBI’s solution is bizarre. It wants investment bankers to monitor the use of funds, when they have neither statutory rights nor contractual obligations to do so once the fund-raising exercise is complete.
Even well-run companies are encouraged to leave nothing on the table for new investors, while their investment bankers babble about problems of fixing the price. None of it would matter, if corporates had the vision to seek genuine subscriptions by pricing their issues sensibly. Instead, IPO investors find prices move in one direction after the issue—south. That’s not all. Many promoters deliberately flout listing rules to get their companies suspended from trading.SEBI does nothing. Neither stock exchanges nor SEBI bothers to keep tabs on wrong disclosures under the listing agreement as well as failure to report material disclosures. Some companies, such as Octant Industries, have demerged and not re-listed one entity. Forget investors, even we in the media cannot get answers out of the BSE or SEBI. The only part of the dubious IPO game that has been fixed by SEBI is preventing listing day price manipulation by introducing volatility curbs. If they work, then companies planning IPOs will have to price issues sensibly instead of depending on financiers and operators to ‘manage’ subscriptions and find an exit by manipulating listing prices. It’s a Catch-22—does SEBI have the courage to break the vicious cabal of promoters-investment bankers-financiers and market manipulators?
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