SEBI Chief Bhave Displeased with Overpricing of IPOs

CB Bhave, the Chairman of Securities and Exchange Board of India (SEBI), has voiced his concern over the unrealistic pricing of initial public offers (IPOs) by investment bankers. The chairman stated  that the bankers should not overlook the interests of investors at large just to maximize returns for promoters, as it is they who feel the brunt when the steeply priced shares of companies decline when market tide overturns. Bhave stated “in a bid to maximise returns for promoters, they (investment bankers) are not looking at the interests of investors…. You need to introspect whether it is a healthy practice. If you keep investors disappointed day in and day out, the cause of investors will only be a lip service.”

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Bhave’s displeasure on the IPOs by companies at prices disproportionate to their revenues, profits and net worth came after a recent report by one of the leading rating agency showed that out of the 116 IPOs that surfaced between August 2007 and August 2010 as high as 62% of the IPOs are trading lower than their respective price bands. In addition, the BSE IPO index which gained 14.5% in the last 12 months underperformed against the Sensex which increased by 19.45%.

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The investment banker’s ploy of quoting near-zero fees to garner divestment issuances too has not gone down well with the SEBI Chairman who expressed reservations over the prcatice as he stated “they need to decide as to whether they can go on charging zero fees for doing work. What mechanism they evolve is for them to decide.”  He also is of the belief that a code of conduct or ethics should be put into practice to avoid such competition. ‘The industry body can do this by bringing in a certain degree of quality and behaviour,’ said Bhave.

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