‘Safety Net’ in Sai Silks IPO may be a Trendsetter

Sebi has been crying hoarse about the need for safety net for retail investors participating in initial public offerings. Now, companies seem to be listening to it. Sai Silks has come out with the first IPO to offer capital protection to retail investors. It has reserved 55% of its . 89-crore IPO, or . 49 crore, for retail investors. The promoters have committed to buy back shares up to a maximum of 1,000 from each retail individual investor if the stock price falls below the IPO price within the first six months of listing. The IPO document says the promoter group will buy up to a maximum of 1,000 originally allotted shares from retail individual allottees if the stock price falls below the issue price.
“This (capital protection) is an excellent initiative that will ensure better retail participation and is a step in the right direction,” Vikram Dhawan, director, Equentis Capital, a UK-based analytics firm, said. The timing of the safety net scheme appears to be right given that retail investor sentiment is weak, he said. 
The equity research head of a foreign brokerage house, who spoke on condition of anonymity since he is not authorised to speak to the media, also said the move could boost retail participation. “Maybe, it would take one or two more IPOs to work out all the modalities of such an arrangement. However, there is no doubt this will be a trendsetter. Gradually, more and more people will start using the scheme, which may become a permanent feature in time to come,” he said.
“Ultimately, the markets will have to operate on fundamentals, but such an initiative will ensure better discipline. Going ahead, this may lead to IPOs without safety net facing risk discounts. In other words, safety net may lead to premium pricing,” Dhawan said.
Sai Silks IPO received bids for 62.98 lakh shares against the 1.27-crore shares on offer on the first day, translating into 50% subscription till 1700 hrs, as per data available on the NSE. The company, primarily into women’s ethnic wear business, has set a price band of . 70-75 apiece for the issue, which would close on February 13. The share sale proceeds will be utilised for setting-up retail outlets, brand promotion activities, term loan repayment and meeting working capital requirements.
If successful, the capital protection scheme could be a significant reform measure in safeguarding the interests of retail shareholders.