I-bankers complain of Sebi taking too long to clear IPOs

Merchant bankers are unhappy with the time taken by market regulator, Securities and Exchange Board of India (Sebi) to give clearances to companies for their initial public offerings (IPO). The minimum time taken by the regulator to clear draft red herring prospectus (DRHP) in most cases has gone up to 4-6 months, merchant bankers complain.

FE spoke to about five book running lead managers out of which four expressed concerns on the same. A few merchant bankers are said to have informally raised this issue with Sebi.

As per data compiled by Prime Database, a primary market tracking firm , the average time lag between the date of filing of a DRHP with Sebi and date of receiving approval is about 120 days for the 94 companies that have got their DRHPs cleared since January 2010.

However, it has taken 4 months or more for 40 of these companies to get the final approval from Sebi. Another 60 companies, currently, are still awaiting approval. About seven of them, including Shirdi Industries, NKG Infra and Jain Infraprojects, who have filed their DRHPs over 300 days ago are yet to receive clearance. Meanwhile, it took over 400 days for RDB Rasayans to get its DRHP cleared and 392 days for Rushil Decor.

It took Future Ventures about 161 days to get its offer document cleared, while some others like Raheja Universal, Greatship India and Innoventive Industries took about 150 days to get the final nod.

Once a company files its DRHP, the regulator is supposed to get back to it in 21days with first remarks and observations. However, bankers say in most cases the regulator hasn?t got back within the stipulated time. Merchant bankers blame the delay on lack of manpower at Sebi. Also, as majority of the IPOs in the past have not done well, Sebi has adopted a very meticulous approach in vetting the prospectus, they say.

?The overall frequency of clearing prospectus is poor, the US market regulator takes about 2 months,? said a banker, who didn?t wish to be identified. ?Even if the delay is for adopting a cautious-approach, investors are losing out money investing in existing IPOs,? he said. This increase in time duration is pinching the standalone merchant banking firms the most.

?Most promoters give fees only after successful completion of IPOs. Hence, the time lag is hurting us a lot. Large merchant bankers, unlike us, have other business like broking and lending to fall back upon,? said an executive at a merchant bank.

Another issue bankers are facing is adjusting to the market volatility. A case in point is GE Shipping-promoted Greatships India, which filed its prospectus in May 2010 but got it cleared in February 2011, when the secondary market was very volatile. Finally, the company decided to withdrawn its DRHP citing poor market conditions.