6 merchant banks charging high fees in SME IPO on SEBI’s radar, recovery of up to 15 per cent instead of three
New Delhi| SEBI is investigating six merchant bankers who collected many times more fees from companies in small and medium IPOs. All of them have charged companies up to 15 per cent of their total issue size in the name of making huge bids in IPOs. Whereas the average fee ranges from one to three percent.
Recently there has been a flood of initial public offerings (IPOs) of small and medium companies (SMEs). The issue of all these is manifold. Investors have also benefited on the same basis. In such a situation, taking advantage of this, merchant bankers charged fees up to 15 percent of the companies’ amount raised.
According to sources, the investigation by the Securities and Exchange Board of India (SEBI) has started earlier this year. SEBI is repeatedly cautioning investors about investing money in the market. Companies listed on SME platforms have to provide less information than larger companies.
SEBI’s preliminary investigation has revealed that merchant bankers are charging higher fees for oversubscribing IPOs. The regulator wants to curb nexus activity between merchant banks and some big investors. These investors break the rules and bid a lot in the category of high net worth and retail investors. These bids are not genuine. Such bid is rejected at the time of allotment of shares. But because of this other investors are also attracted to invest money.
There are more than 60 investment bankers in the country. These work for small business IPOs. The SME sector is rapidly entering the IPO market in India. 205 SME companies raised Rs 60 billion in the fiscal year ending March. In 2022-23, 125 companies had raised Rs 22 billion.
In April-August this year, 105 SME IPOs have raised Rs 35 billion. More than two-thirds of these IPOs have received full subscription. In July, SEBI has imposed a 90 per cent cap on the rise of shares on the first day of SME IPO. SEBI is also working on 12-15 Action Points, which will make the rules more stringent for small companies.
