- The issuer approaches a merchant banker who shall prepare an offer document in compliance with regulations and ensuring adequate disclosures.
- The draft offer document shall be filed with SEBI for vetting and the final document shall be filed with Registrar. (No need for application forms with non-readable disclosures necessary. Imagine printing cost savings.)
- The market makers (BRLM in new avatar) shall provisionally register the securities with the depositories and offer a mandatory online two way quote to interested investors for a five day period.
- If there is enough demand for the security, the entire issue will be subscribed and if not, the unsubscribed portion (above a minimum watermark of say 70% of issue size/volume) shall be extinguished.
- Issuer shall have the option to pull out the issue at this stage if it is not happy with 70% subscription and credit the sums back to investors online/offline. Alternatively, if the market makers have agreed in advance (hard underwriting) to absorb the 30% unsubscribed portion at the closing price of the 5th day, they can.
- Significant reduction in issue expenses;
- Online access to offer document. Facts don’t get mired in fine print;
- No categorization of QIB, HNI and Retail;
- The whole issue completed in 5 days, unlike 8-9 weeks that it takes now;
- All category of investors to pay the full price they bid; No question of revised bids. Make a mistake, you just will have to buy/sell.
- Being a transparent online mechanism, no scope for payment default since there is an instant direct debit to investor’s bank account;
- Case for refund only if the IPO is subscribed below 70% or if the issuer chooses to pullout;
- Efficient price discovery since price is what an investor is willing to pay and grey market operators get edged out;
- Investors don't get sucked in by the media blitz following QIB oversubscription figures;
- The reduced effort of BRLM would enable them to charge lower fee from issuers.
In essence, by applying the excellent secondary market infrastructure that we have now (with T+2 settlement) and the prevailing low brokerages, this mechanism is significantly more efficient, issuer and investor friendly and certainly a game of surety than of chance. No more bad listings; No more sudden pullouts.
Mr.Damodaran, if you need help, you know whom to call. Here are some more perspectives from Samir Barua (IIM-A), Rashesh Shah (Edelweiss) and Alok Vajpeyi (Dawnay Day AV).