MUMBAI, Dec 30 (Economic Times): Companies headed for an initial public offering (IPO) will have more legroom to sell shares to foreign investors. They need not reserve 25 per cent of the share sale for domestic mutual funds and insurers if the regulator is convinced of the disclosures regarding valuation and justification of premium.
Investment bankers, with the mandate to lead some of the maiden offerings, have learnt this from recent conversations with officials of capital market regulator Sebi.
Although the practice to earmark at least a quarter of the shares issued in an IPO for local institutional investors was not officially made mandatory by Sebi, most of the recent IPO documents chose to follow the advice.
While this did not go down well with MNC banks, many domestic merchant banks believe that a compulsory sale to local institutions helps fair pricing and has a sobering effect on promoters whose valuation expectations have soared with the Sensex.
Sebi has been exploring options that could attract retail investors. With shares often trading at a discount to the issue price post listing, many small investors are driven away from IPOs.
Earlier, the regulator had introduced the 'safety net' mechanism where promoters would buy back shares from retail investors if the traded price was continuously below the issue price for a certain period.
But Sebi decided to make it optional as it drew flak from a section of the market on the grounds that this system went against the basic tenet of equity investing. The move to ask companies to sell 25 per cent of an issue to mutual funds and insurance companies was the latest attempt to boost retail investor participation.
Investment bankers, with the mandate to lead some of the maiden offerings, have learnt this from recent conversations with officials of capital market regulator Sebi.
Although the practice to earmark at least a quarter of the shares issued in an IPO for local institutional investors was not officially made mandatory by Sebi, most of the recent IPO documents chose to follow the advice.
While this did not go down well with MNC banks, many domestic merchant banks believe that a compulsory sale to local institutions helps fair pricing and has a sobering effect on promoters whose valuation expectations have soared with the Sensex.
Sebi has been exploring options that could attract retail investors. With shares often trading at a discount to the issue price post listing, many small investors are driven away from IPOs.
Earlier, the regulator had introduced the 'safety net' mechanism where promoters would buy back shares from retail investors if the traded price was continuously below the issue price for a certain period.
But Sebi decided to make it optional as it drew flak from a section of the market on the grounds that this system went against the basic tenet of equity investing. The move to ask companies to sell 25 per cent of an issue to mutual funds and insurance companies was the latest attempt to boost retail investor participation.
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