With the Securities and Exchange Board of India (Sebi) deciding that merchant bankers need to be made more accountable for IPOs, the latter are scurrying to put together a set of norms by which they can continue to monitor the information put by a company when its debuts on the bourses.
The Association of Merchant Bankers of India (Ambi) has convened a meeting of its members on September 5 to discuss the framework for ‘due diligence’ to be maintained by merchant bankers.
On July 28, Sebi had mandated merchant bankers to maintain a record of due diligence done by them both pre issue and post issue. Also on cards are a mandatory professional certification examination for professionals engaged in the investment banking industry. Following a suggestion from the market regulator, Ambi has already initiated discussions with the National Institute of Securities Market to develop the curriculum for the certification exam.
?A five member working group of Ambi has developed a detailed framework governing the due diligence process, which will be discussed among its members. The idea is to evolve a consensus among members to establish a minimum benchmark and uniform practices to be followed across the industry,? said a source. ?Thereafter the matter will be taken up with Sebi before giving it a final shape,? he added.
According to Sebi norms, the merchant bankers are required to exercise due diligence in the pre-issue and post-issue activities of issue management, takeover, buyback and delisting of securities. However , they were not required to maintain any records as to how they exercised due diligence. ?As a result, the merchant bankers followed different standards of compliance and the level of due diligence cannot be checked during inspection of merchant bankers by Sebi,? the Sebi board had observed earlier.
Concerned over many IPO’s trading well below their issue price soon after their listing, Sebi had proposed the disclosure of the track record of previous public offers managed by merchant bankers in the IPO application form. Additionally, Sebi also wanted merchant bankers to disclose the peer comparison of important financial ratios in the IPO application form. This according to the regulator will enable investors take a well informed investment decision.
Sources indicated while Sebi was in favour of having a five year track record of price performance in the disclosure, merchant bankers have suggested a disclosure of one year track record in the IPO application form and the remaining period in their respective websites.