Sebi to Address High IPO Valuations: Chair

Mumbai, Nov 25 (PTI) Sebi chief Madhabi Puri Buch on Saturday said the regulator will certainly address the issue of exorbitant valuation of initial public offerings, amid a slew of share sales hitting the capital market.

This week, five companies, including Tata Technologies, came out with their Initial Public Offerings (IPOs) that garnered a record Rs 2.6 lakh crore in application amount.

To a query about high premiums for some shares in IPOs, Buch said, "Of course, we are fully with you on this as the rationale given for high premia are nothing but some meaningless English words".

"We are certainly going to look into it and address the issue," she said while briefing reporters after Sebi's board meeting here.

It can be noted that to boost investors' interest in little-known companies' IPOs, the issuers and their investment bankers quote low face value but the issue is priced high citing a very high premium.

On whether Sebi is planning to advise issuers and other market makers to space their issues in a more timely manner and with enough gaps between two issues, Buch said that is not the job of the regulator. "After all, timing the market is not our job".

"We want to leave issue timing to the market. Else that will be unfair on our part as a Sebi mandated time may not be the best for the issuer and the investors. A company comes to the market to raise money at a time that's best suited for them.

"Also, we aren't worried about the issue scrambling as from a regulatory perspective our job is to ensure that the system can take the load which our market is doing perfectly well,” she said, adding institutional capacity is not a problem at all. “At least nothing negative has come to our notice yet on this front," she said.

To a query on whether Sebi will allow a green-shoe option as is permitted in other market activities wherein the issuer has the freedom to retain over subscription to a considerably larger amount, she said the answer is no as it has to be addressed from a practical and conceptual perspective.

"From the practical side, it is possible but from a conceptual angle this is not possible as unlike a debt issue or any other market instrument wherein there is not equity dilution, in an IPO it precisely is equity issue. So if we allow a green shoe option it will lead to an undesired dilution of equity which and other implications," she said.