In order to make initial public offers (IPOs) transparent and investor friendly, the government is in close consultation with market regulator SEBI for evolving guidelines for price band for public offers by India Inc. The move is also expected to ensure funds are not diverted from the purpose for which the capital was raised. The Ministry of Corporate Affairs (MCA) has been asked to take steps to prevent companies from fixing arbitrarily IPO price band at a very high level.
The MCA has set the timeline of 3-4 months to come out with the guidelines on slapping limits on fixation of price bands by companies. There are many instances of misuse of money collected through IPOs in the purview of the ministry. The present norms prescribe for a book-building process in the IPO and the base for the same is the price band that is announced by the companies before the start of the public issue bidding process.
Due to the absence of any guidelines, companies raising funds through IPOs fix the offer price on their own depending on their perception of the demand for shares and appetite of the market. Quite often the shares are listed at below the offer price causing loss to the investors.
The companies take the help of the investment bankers to fix the price. However, the reasons for the prescribed price are not disclosed except for the cases where pre-IPO private placements take place. With the stock market picking up, several companies, including real estate firms Emaar MGF and Sahara Prime City, have filed their draft prospectus with the SEBI.