IPO financing rule to hit subscription – Times of India

MUMBAI: RBI’s proposal to cap IPO financing by NBFCs to up to Rs 1 crore per person may lead to a sharp drop in bidding by high net worth individuals (HNIs), which may result in a drastic reduction in subscriptions of offers.
Banks have a Rs 10-lakh limit on IPO financing and there is no such cap for NBFCs. “IPO financing by NBFCs has come under close scrutiny, more for their abuse of the system,” the RBI said in a discussion paper. “Taking into account the unique business model of NBFCs, it is proposed to fix a ceiling of Rs 1 crore per individual for any NBFC,” the RBI said.
Currently HNIs, with money borrowed from NBFCs, are allowed to pay just 1% margin money to bid for the entire portion reserved for this group of investors. In effect, in a Rs 1,000-crore IPO, 50% of which is reserved for HNIs, these investors can pay just Rs 5 crore to bid for shares worth Rs 500 crore offered in the IPO. Bidding with borrowed money can lead to a huge rise in the total subscription in the IPO and then to the listing prices of these offers.
Often a high oversubscription number in an IPO may mislead investors into thinking that the company is doing exceptionally well, shares are highly valued and hence the mad rush for them. Post-listing, however, the shares slide and some of the investors incur losses. Market players said that RBI’s proposed rule would surely bring a break to highly subscribed IPOs.

Speak Your Mind

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Get in Touch

350FansLike
100FollowersFollow
281FollowersFollow
150FollowersFollow

Recommend for You

Oh hi there 👋
It’s nice to meet you.

Subscribe and receive our weekly newsletter packed with awesome articles that really matters to you!

We don’t spam! Read our privacy policy for more info.

You might also like

Niall Horan, Circa Waves And The Shires Debut New...

SUNRISE, FL - DECEMBER 22: Niall Horan performs on...

Cuomo: New York’s Coronavirus Crackdown Saved ‘Thousands’ Of Lives

TOPLINE During a Tuesday press conference, New York Governor Andrew Cuomo said New...

China Gains Hoist Asian Stocks To Two-year Peak

SINGAPORE: Chinese stocks led Asian markets higher on Monday as investors bet on a...

The Volunteer Moderators Who Helped Reddit Grow Into a...

The platform's sprawling network of forums are self-policed, turning a once-frugal corporate policy into...