Payment on allotment trial from September 8

Payment on allotment trial from September 8

IPO REFORMS
Priya Nadkarni / Mumbai August 30, 2008, 0:04 IST

Reforms in the primary market may witness a further thrust as capital market intermediaries get ready to implement Application Supported by Blocked Amount (ASBA) in the initial public offers (IPOs), an alternative mode of payment proposed by the Securities and Exchange Board of India (Sebi).

The pilot project to implement ASBA is likely to kick off from September 8 with the IPO of Gujarat-based 20 Microns, a manufacturer of white minerals, said a banker familiar with the process. 20 Microns will tap the primary markets with an IPO of 43,50,632 equity shares of Rs 10 each. The issue is slated to close on September 11.

Sebi has informed the book-running lead manager of the issue — Keynote Corporate Services — and all bankers that the ASBA process will be kicked off with this IPO, the banker added. So far, Sebi has granted Self Certified Syndicate Bank (SCSB) status to five banks — Corporation Bank, Union Bank of India, HDFC Bank, State Bank of India and ICICI Bank.

The 20 Microns issue will have all five banks acting as SCSBs. The nodal or controlling branches for all the banks are in Mumbai, while they have designated branches (DBs) all over the country. The process will co-exist with the current process, where bids are put through syndicate/sub-syndicate members with cheque as a payment instrument.

SCSBs would accept the applications, block the fund to the extent of bid payment amount, upload the details in the electronic bidding system of BSE or NSE, unblock once basis of allotment is finalised and transfer the amount for allotted shares, to the issuer.

The National Stock Exchange of India completed mock electronic bidding process for implementing ASBA on August 14. The Bombay Stock Exchange is still conducting the mock e-bidding process and it will be complete before the pilot project begins on September 8.

This is how the process will take place: A retail investor (who has a bank account with the SCSB) will approach a DB of one of these banks and put in his bid. In the case of 20 Microns, it will be Rs 55 a share since the price band of the issue is Rs 50-55 a share.

After the DBs verify the data (permanent account number, Depository participant ID and client ID), they will upload files with the nodal branch, which will in turn upload data into NSE/BSE application. They will also freeze the amount from the client’s account.

The banks will then upload the accepted data into registrar’s application. The exchanges will scrutinise the data and will report invalid entries to the bank. They will also convert the bank data into valid bids in the exchange application.

The registrars will download the data from the bank and from the exchange and reconcile the data, validate the the IDs and then allot the shares as per the basis of allotment, fixed by investment bankers along with the company.

Once this is done, the banks will be intimated and money will be released from the investor’s account.

The money will be deposited into the escrow account. This will speeden up the IPO process and consequently reduce the number of days between the IPO closure and the day shares get listed on the exchanges.


Source: http://www.business-standard.com/