UPI reduces Refund TAT in IPO Process – New SEBI Guideline

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          There are two scenarios in an IPO (Initial Public Offering) when the company needs to refund monies to the investors

Scenario 01) Non receipt of minimum subscription

An IPO is termed as undersubscribed when the demand is underwhelming, that is when the number of shares supplied by the company is higher than the demand.

An IPO is said to be undersubscribed when it receives applications for less than 90%, of the total issuance. In such cases, the share application monies have to be refunded to the investors.

Scenario 02) The share issue issuer fails to obtain listing or trading permission from the stock exchanges where the specified securities were to be listed. This is the rarest of the rare case, but SEBI to protect the investors' investments, has guidelines for such a scenario too.


The timelines for refund as per the relevant Guidelines are :

Scenario 01 – within 15 days from the closure date 

Scenario 02) - within “seven days” of receipt of intimation from stock exchanges rejecting the application for listing of specified securities.



In view of the rapid technological development in the financial market, SEBI felt a need to revisit the above timelines.

Two main developments A) ASBA popularity 02) ASBA via UPI played an important role in the revised guidelines.

As per the revised guidelines issued by SEBI on March 31, 2021 vide circular no SEBI/HO/CFD/DIL1/CIR/P/2021/47 the refund TAT is reduced to within 4 days, for both the above events.

SEBI arrived the “four days”, timelines in consultations with market participants.

Points to be noted:

Under ASBA, (Application Supported by Blocked Amount) the application money is not transferred from the investors account to the company account. The application money is only blocked, and only on the final allotment, the respective amount is moved to the company’s account.

In case of partial or non-allotment, the respective amount has just to unblocked. Hence, a shorter TAT is possible.

Further, Further, post introduction of UPI mechanism in public issues, intermediaries are responsible to compensate the investors for any delay in unblocking of amounts in the ASBA Accounts exceeding four working days from the bid/issue closing date.

Hence, the TAT of 4 days for refund/unblocking of the investor’s funds is feasible.

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In recent times, the most famous under subscribed IPOs are ICICI Securities and HAL in mid-2018.

ICICI IPO was undersubscribed recently as many investors felt that the IPO valuation was far too high. ICICI fell short of more than Rs 50 crore — they had expected to raise more than Rs 4,000 crores.

 

In the same week, HAL (Hindustan Aeronautics Ltd) was subscribed at only 50% during the third day of its IPO. But when LIC decided to invest, the percentage of the subscription rocketed to 99%.

As both the IPOs could meet the 90% minimum subscription requirement, there was no need for refund on monies.

Disclaimer: These are my personal views only. The bottom line is Mission #LessCashNotCashLess

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