Sebi plans to cut IPO timeline to just 4 days

Time taken between closing and listing planned to be cut to 4 days from 12; but there are practical hurdles; feedback on the switch likely to be sought.

The Securities and Exchange Board of India (Sebi) wants to cut the timeline for Initial Public Offers (IPOs) and Follow-on Public Offers (FPO) of equity to four days.

The move, if implemented, will see companies close their offerings and list the securities in the same week.

It will also attract more investor participation, as their funds will be locked in for a shorter duration.

The proposal to cut the IPO timeline was discussed at Sebi’s Primary Market Advisory Committee (PMAC), which met recently.

“Cutting the timeline is achievable. However, whether the market is ready to digest the steps that need to be taken is the debate,” said a PMAC source.

It is believed that bringing down the timeline for IPOs is necessary to improve the market’s efficiency. “If you have to wait for 12 days to get the goods in any kind of transaction, it is not a good marketplace.

The IPO timeline has to be brought down. Nowhere else in the world does it take 12 days,” said Prithvi Haldea, chairman, Prime Database, an IPO tracking firm.

“A reduction will help investors, as it will bring down the market risk. A lot of times, the market changes substantially between the IPO and the listing.”

Experts say Sebi plans to use the secondary market infrastructure to bring down the timeline. Investors will have to apply directly to the stock exchanges, on the lines of the offer for sale (OFS) route.

Sources, however, said the difficulty is that doing so will make redundant the existing infrastructure for IPO distribution. “A section of the market doesn’t want any changes to the distribution method as it will hurt the intermediaries,,” said a source.

An alternative way is to make the Asba (Applications supported by blocked amount) facility compulsory for retail investors.

Currently, those applying in the institutional investors and high net worth individuals (HNIs) category have to compulsory apply through Asba, where the application amount doesn’t leave the applicant’s bank account until the allotment process is complete.

Sebi has not made Asba mandatory for retail investors as the facility is not available with all banks, especially small-size public sector lenders.

Making this route compulsory will impact investments from small cities, where investors rely on cheque payments in the absence of Asba, which requires internet banking.

“The delay is largely due to physical payment methods. Reconciliation and clearing of cheques is a time-consuming process. Only if you eliminate the physical process can the IPO timeline be reduced,” said Haldea.

Market players say it takes up to five days to complete the cheque payment process in IPOs.

Sebi had previously truncated the IPO process in 2010, when the timeline was cut from 22 days to 12 days. “Sebi will seek market feedback before making any changes to the IPO process,” said the source quoted earlier.

THE PRESENT IPO TIMELINE

T: Issue closing

T+1: Provision to make modification in bids

T+2: Bankers submit allotment details to exchanges

BETWEEN T+3 AND T+11

Clearing of payment Validation of bids Technical rejections Basis of allotment Refund process Exchanges issue commencement of trading notice

T+12 Trading commences

T is closing day; + indicates the number of additional days taken

Source: Sebi