November 15, 2009

life in financial markets: unviable Sebi's new small companies' listing rules

It looks like it is doomed to fail.

The latest Securities and Exchange Board of India (Sebi) move to allow listing of small IPOs of paid-up equity capital of Rs 10 crore and less on existing stock exchanges had been in the offing for about two years.

Such small IPOs were already possible under BSE's listing norms but had to comply with difficult requirements such as minimum revenue of Rs 3 crore in each of preceding three years and a 1,000 minimum public shareholder requirement.

These restrictions won’t apply under the new relaxations for the BSE. Even the NSE, that presently has a minimum paid-up capital requirement of Rs 10 crore for IPOs, will be able to list small companies.

But two new conditions that Sebi has introduced are expected to discourage small-size IPOs. These are the minimum IPO application size amount of Rs 1 lakh and a post-listing minimum trading lot size of Rs 1 lakh. These are expected to take away liquidity in trading and scare away even the big investors and institutional investors.

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