Merchant bankers to meet Malegam over two SEBI rules

NetScribes/Janaki Krishnan

Merchant bankers want the Securities and Exchange Board of India to do away with two rules. The first is that promoters have to bring in a minimum of 20 per cent equity and the second pertaining to the mandatory lock-in period of three years in case of initial public offerings.

This is one among the several suggestions to be made by the merchant bankers at their next meeting with Y H Malegam, who chairs SEBI's standing committee on norms for IPOs and uniform standards for merchant bankers.

Sources said the regulator should not get into the nitty-gritty of primary market operations and leave the lock-in period and the promoters' contribution to market forces.

Merchant banking circles said the two rules do not distinguish between 'good' and 'bad' promoters. A promoter of dubious antecedents, by merely complying with the regulator's norms, would have the same access to public money as a promoter with a proven and brilliant record.

Disclosures in the offer documents of Internet companies will also be discussed by the committee, sources said. At present, there are no guidelines for the same. Except for SKumars.com (which accessed the market for a minuscule Rs 7.5 million), there have been no offerings by dotcoms.

Elaborating on the disclosure aspects, Chief Executive of Association of Merchant Bankers of India T R Ramaswamy said the information now available in the offer documents have to be aligned with international practices. "We have to fill up the gaps in the existing disclosure norms," he said, adding that the documentation also had to be streamlined.

This will mean reducing the amount of information disclosed in the document and make it more reader friendly. "Material information regarding the company, its projects, fund requirements and so on have to appear in the document," said Ramaswamy. He pointed out that the offer document contained information like the memorandum and articles of association of the company which had no relevance for the investor and which could be had from stock exchanges.

Merchant bankers also want the risk factors to contain material information. Such information would be "that which is peculiar to the company." 'Across the board' risk factors such as foreign exchange fluctuations which impact the entire economy, should be eschewed.

The order in which the information is to appear in the prospectus is also expected to be altered. The details of the company and the project will appear first and then the risk factors. At present, the risk factors are the first thing that appear on the offer document.

An advisory statement by SEBI to the effect that investors should not invest in the company until they have read the risk factors, will also be prominently placed on the offer document.

The meeting with Malegam is expected to be held later this month, Ramaswamy said.

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