Listing ime reduction to save Rs800 crore in interest cost: CRISIL Equities

The Securities and Exchange Board of India's recent directive to reduce the time between the closure of an initial public offering (IPO) and its listing to 12 days from 22 will lead to interest savings of approximately Rs800 crore annually for the retail and high net worth individual (HNI) investors.

According to CRISIL Equities, the directive, effective 1 May 2010 is a step towards realigning the Indian market with the best practices in the developed markets where the listing timeframe is three days from the closure of issue.

CRISIL Equities estimates about Rs40,000 crore will be raised from IPOs in CY2010. 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 calender year 2007 till date.

Based on this, the reduction in the timeline by 10 days is expected to translate into interest savings of Rs800 crore annually at an opportunity cost of 10 per cent.

''SEBI's move to cut the time frame between IPO closure and listing will benefit the investors participating in the primary market since it will lower the opportunity cost for funds invested in the IPO," says Chetan Majithia, head, CRISIL Equities.

Majithia adds, "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.''

The time frame for listing on stock exchanges in developed markets such as the US, UK and Singapore is three days. Even in some of the 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.