Financial Daily from THE HINDU group of publications
Wednesday, Mar 26, 2003
Financial Daily from THE HINDU group of publications Wednesday, Mar 26, 2003 |
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Regulatory Bodies & Rulings Corporate - IPOs IPO panel move to check fly-by-night operators — Net tangible assets criterion preferred Our Bureau
MUMBAI, March 25 MOVING away from the profitability criteria, a Securities and Exchange Board of India (SEBI) committee has recommended net tangible assets (NTA) as a key eligibility criterion for companies planning to come out with an initial public offer (IPO). According to the draft report of the Primary Market Advisory Committee of SEBI, which was released on Tuesday, companies coming out with an IPO should have a minimum NTA of Rs 3 crore in each of the preceding two full years, of which not more than 50 per cent is held in monetary assets. NTA includes all assets of a company other than intangible assets, not eligible to be recognised as assets, as defined in terms of Accounting Standard on Intangible Assets. According to the committee, tangible existence of a company for a reasonable period is a good eligibility norm, as it would also eliminate fly-by-night operators. The NTA criterion should further ensure the physical existence of the company over a longer term and also ensure that the company is engaged in a genuine business activity. Other than the NTA of Rs 3 crore, the company would be required to have a net worth of at least Rs 1 crore in each of the previous two years. To prevent raising of unmanageably large amounts, the committee has said that the issue size shall not exceed five times the pre-issue net worth of the company. In case the issuer company has changed its name in reflection of the latest sunrise sector within the last one year of the IPO, at least 50 per cent of the revenue for the preceding full year shall be accounted for by the activity suggested by the new name. If a company is not able to meet these conditions, the issuer can still raise the money from the public if the issue is made only through the book-building process. For IPOs through the book-building process, the committee has reduced the minimum offer to qualified institutional buyers (QIBs) to 40 per cent from the current level of 60 per cent. This has been done to increase retail investor participation and encourage the thinly numbered QIBs to invest in IPOs. If it does not want to go through the book-building process, the company raising money for a particular project should have at least 15 per cent of the project cost funded by financial institutions or scheduled commercial banks. Of this funding, at least 10 per cent should come from the appraiser of the project. In addition, the minimum post-issue face value capital of the company shall be Rs 10 crore to ensure that for these types of companies there is a reasonable size of listed capital to ensure liquidity. In case the paid-up capital is below Rs 10 crore, there shall be compulsory market making for at least two years from the date of listing of the shares to ensure continuous liquidity. In addition, all the companies coming out with IPOs have to satisfy the criterion of having at least 1,000 allottees in the issue for wider holding.
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