Sebi makes IPO disclosures more investor-friendly

Mumbai, Jan 25 | Updated: Jan 26 2005, 05:30am hrs
Capital market regulator Securities and Exchange Board of India (Sebi) on Tuesday unveiled a slew of measures to make the set of disclosures for new issues more investor-friendly and easy to decipher. Alongside, it has also taken steps to reduce the cost of new issues.

Sebi has decided to make the abridged prospectus more readable and investor friendly. This is part of the regulators continuing endeavour to make retail investors more aware about their investments and empower them to take informed decisions.

The abridged prospectus, which accompanies the application form of an initial public offering (IPO), also carries a set of disclosures in abridged form on the reverse of the application form.

Sebi has now asked all the lead managers to change the design of the application form. Henceforth, the reverse portion of the application form will have to be left blank and will not carry any issue-related information.

Currently, a certain part of the information which forms a part of the abridged prospectus, is retained with the application received by the bank. But from now on, the investor will be able to retain all the disclosures in the abridged prospectus for future reference.

These and other important changes in Sebi (Disclosure and Investor Protection) Guidelines, 2000 were notified by the regulator through a communication to all the merchant bankers on Tuesday. These changes will come into force from February 25, 2005 and will be applicable to all those IPOs in respect of which Sebi has already issued observations.

A Sebi official said, The proposed changes are intended to enhance investor protection and also, to some extent, bring down issue expenses. Some of the proposals are intended to remove restrictions and enhance disclosures.

Sebi, in a communication, said, In order to achieve the objective of making the abridged prospectus more readable, the DIP guidelines have been amended and this includes increasing the readability/visual impact of the contents of the abridged prospectus, deleting the repetitive disclosures, etc.

The sequence of items followed shall be the same as appearing in the prospectus, it said.

The disclosures in the abridged prospectus are as per form 2A of the Companies Act, 1956 and are considered most relevant for prospective retail investors. With a view to bringing down the cost of an IPO, Sebi has also decided to do away with the pre-issue advertisement for book-built IPOs.

Currently, for book-built issues, the DIP guidelines require an issuer to publish a detailed advertisement running into pages in a newspaper, containing the features as specified in the abridged prospectus.

The pre-issue advertisement plays an important role in creating awareness about the issue. However, the cost involved in publishing the entire abridged prospectus in the newspaper is reported to be too high. In view of this, and also in view of the fact that abridged prospectuses are already available to investors along with the application form, the guidelines have been amended.

While pre-issue advertisements have been made mandatory for all public issues (fixed or book built), the issue advertisements (pre-issue advertisements, issue opening or closing advertisements) would contain only the minimum details prescribed in the formats specified in the guidelines. Issue advertisements, like those for issue closing or opening advertisement, would continue to be optional, Sebi said.

Sebi has also removed restrictions on the appointment of co-managers, advisors etc and has enhanced disclosures pertaining to issue expenses. It has also streamlined clauses of Section I of DIP guidelines. These have been rearranged in the same order in which disclosures should appear in the prospectus.