Sebi wants monitoring agency to keep an eye on all IPO funds

Mar 03 2014, 10:49 IST
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Earlier, in several cases, companies have changed the stated object of use of IPO funds while many have vanished from the market. Earlier, in several cases, companies have changed the stated object of use of IPO funds while many have vanished from the market.
SummaryEarlier, in several cases, companies have changed the stated object of use of IPO funds while many have vanished from the market.

one of them.

“Constitution of such committee will be helpful in facilitating monitoring of utilisation of issue proceeds. Further, the said requirement will ensure active involvement of board of directors monitoring of utilisation of issue proceeds,” the discussion paper said, giving the rationale behind setting up of the sub-committee.

Along with the new corporate governance norms that look to put a check on the number of companies and the tenure that one can serve as an independent director, this move puts in additional responsibility on the shoulders of independent directors.

While the audit committee and the management were not in picture earlier, the regulator has said, “Audit committee and the board/ management shall provide their comments for the deviation, if any, pointed out in the report of monitoring agency.”

Sebi said that such comments will help understand the reasons for any such deviations.

The bottomline

Once the proposals are approved by the Sebi board and implemented, it will go a long way in providing a safety net to retail investors. It will also act as a deterrent for promoters who enter the capital market with wrong motives. While the proposals look to empower and entrust independent directors with additional responsibility, it should also help in reduction of instances of promoters misusing funds raised through IPOs.

The vanishing act

There are 238 companies in the government’s list of ‘vanishing companies’ and out of them 87 remained untraceable till March 2012.

Earlier, companies coming up with public offerings of raise less than Rs 500 crore were not required to have any monitoring agency. Sebi has now come out with a discussion paper inviting public comments on its proposal to require all public offers to have a monitoring agency.

A look into IPOs between 2011-2013 shows that only 8 out of the 51 public issues raised over Rs 500 crore from the market, whereas more than 80% of the issues had issue size of less than Rs 500 crore.

Market regulator has also proposed that the monitoring agency will have to submit its report on a quarterly basis against semi-annual basis.

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