The new guidelines announced by the Securities Exchange Board of India (SEBI) to speed up the public issue of shares by eligible companies that are already listed on either the BSE or the NSE are to be welcomed. At present companies will have to go through a fairly lengthy process. Although over the years there has been considerable simplification, there are still some regulatory and company law requirements whose compliance inevitably takes some time. For instance, whether a company makes an initial public offer (IPO) or a follow-on public offer (FPO), it will have to file its prospectus with SEBI which will give an observation letter within 30 days. The new guidelines do not dispense with the filing requirements but enable the companies to access the markets on the basis of rationalised and simplified procedures. After obtaining the in-principle clearances from the stock exchange, the lead managers need only to file the prospectus with SEBI before proceeding with the share issues. A considerably shorter issue period will help in cutting down the costs of a public offer in avoidable advertisements and publicity. Besides, companies will be able to time the issue to their advantage. Considering the volatile nature of stock price movements today, that would be a major gain.
In many ways, the new regulatory approach is overdue. There was always a case for distinguishing between companies having an impressive track record on the principal exchanges and those that are making share offers for the first time. The new guidelines take into account the fact that companies in the former category are, by virtue of their listing agreements, meeting the disclosure standards and redressing investors’ grievances. Hence there is no need to make them comply with all the regulatory rules that are applicable to companies making an IPO. Investors stand to benefit in two ways. Many of them are likely to be familiar with a listed company with a three-year track record and a healthy market capitalisation. In any case, relevant information on them will be readily forthcoming. Secondly, taking advantage of the new guidelines, many eligible companies may prefer to access Indian capital market rather than go abroad. Investors therefore may have access to quality shares, as the market becomes deeper. The relaxation now made for few select companies could be extended to a larger number without of course diluting the disclosure and other regulatory norms. The success achieved in monitoring the booming secondary market justifies the introduction of the fast track approach.