Investors can now bid for shares at discounted price: SEBI
19 May 2011
Giving a boost to retail investors, the Securities and Exchange Board of India has said investors eligible for differential pricing can place their bids at the discounted price, instead of paying the full rate upfront.
The regulator has instructed merchant bankers to provide investors the benefit of discount in public offers at the time of bidding, as against the time of share allotment as at present.
''It has been observed that at present investors do not get the benefit from lower cash outflow at a price net of discount, depriving them of the ability to apply for more shares with the same cash outlay. In order to address the above issue, SEBI has decided to allow investors eligible for differential pricing in public issues to make payment at a price net of discount, if any, at the time of bidding itself,'' said a SEBI release today.
State-owned companies which recently launched either an initial public offer (IPO) or a follow-on offer (FPO) had uniformly offered a 5-per cent discount to retail investors. But the benefit of such differential pricing is felt by retail investors only at the time of allotment of shares and not at the time of filing the application, when they have to pay the full amount.
If for instance a retail investor applies for 50 shares priced at Rs100 with a 5-per cent discount, he or she would have to deposit Rs5,000 in the merchant bank under the application supported by blocked amount (ASBA) rules. But now, the investor would be required to deposit only Rs4,750, enabling application for more shares with the same outlay.
Observers felt the SEBI move was investor-friendly as it would do away with the refund process – a logical step after the recent decision by the market regulator to raise the investment limit to Rs2 lakh for retail investors.
However, others were less sanguine. "This circular is taking care of only the top end of the band, pricing can happen at any point. Pricing is dynamic, this is not a very practical proposal and will take some time to settle," The Economic Times quoted an unnamed senior investment banker as saying.