Zee Business Exclusive: SEBI Board may consider minimum 5% gap in IPO price bands

To curb the misuse, the Securities and Exchange Board of India (SEBI) may come soon with a minimum 5% gap in IPO price bands. SEBI had taken this issue seriously and floated a discussion paper last month. As per sources in investment banking, post discussion paper the proposal is likely to be sent to the SEBI board, which is expected to meet next month. The stakeholders have expressed support for this move of SEBI.   

Zee Business had raised the issue in July and highlighted that how in multiple IPOs, the gap in the lower and upper band of the issue was of Rs 1 or Rs 2, which entirely derailed the purpose of book building and made it kind of fix price issue. As per a source aware of the development “SEBI was upset with this trend and had warned through the association of investment bankers to mind the proper gap else it will be forced to come up with stricter regulations”. The trend was seen mainly in issues launched in February, March and April this year.    

Investment bankers are the professionals who guide and handhold the promoters in fundraising, complying with the regulatory requirements. Post Zee Business coverage the matter was referred to SEBI’s Primary Market Advisory Committee which suggested a minimum 5% difference in the lower and upper price band. To firm up rules, later SEBI came up with a discussion paper on the same and sought feedback from stakeholders. Here its important to clarify that the intent of SEBI is not to regulate the issue price but the gap in the price band. Experts believe that this is a good move, Pranav Haldea, MD, PRIME Database Group, says "This is a commendable job by SEBI because many recent issues, due to narrowing of the price band, had become more like fixed price issues than book building issues". 

As per data available in some issues the gap in price band was of Rs 1 only. Here are few examples where the issue was more like a fix band issue as the difference was almost negligible. Like Stove Craft which came up with a price band of Rs 384-385, Home First issue with price band of Rs 517-518, IRFC had a price band of Rs 25-26, Heranba Industries issue was launched in a price range of Rs 626-627,  MTAR Technologies came up in price band of Rs 574-575.  The issue of Indigo Paints came in price range of Rs 1488-1490.  

As per the available data of last10 years after 2016 there is a trend of declining average price band range. In 2010 the average of price band range was 8.42%, in 2011 it was 9.84%, 2012 it was 9.50%, 2013 saw the maximum gap of 10.01%, but thereafter it started declining. In 2014 it was 7.03%, in 2015 it came down to 5.78%, in 2016 it further declined to 5.09% by the year 2017 it was 2.36%, in 2018 was 1.77%, in 2019 it was 2.90% but 2020 saw the lowest gap of 1.48%, in the current year as on September 3rd the average price band range was 1.53%.   

SEBI is considering tweaking regulations related to primary market issues, especially for IPOs as lots of new-age companies are coming for fundraising and more disclosures are sought so investors can take an informed decision.