The primary market advisory committee of the Securities and Exchange Board of India has recommended sweeping changes in the norms for initial public offers to revive the primary market.

If Sebi accepts the recommendations, a company can make an IPO if it has net tangible assets of at least Rs 3 crore (Rs 30 million) in each of the immediately preceding two full years. However, not more than 50 per cent should be held in monetary assets -- cash or cash equivalent, such as securities.

If more than 50 per cent of the assets is held in monetary assets, the company should be committed to deploy the excess money in its business.

The panel has put the minimum post-issue capital (face value) of a company at Rs 10 crore (Rs 100 million) to make sure that the size of the listed capital ensures liquidity.

There should be compulsory market making for at least two years from the date of listing of the shares to ensure continuous liquidity, it said.

A discussion paper on amending the depositor and investor protection guidelines has been posted on the Sebi Web site.

The panel added that a company should have a net worth of at least Rs 1 crore (Rs 10 million) in each of the preceding two full years, to ensure that fly-by-night operators did not access the primary markets.

If the issuer company changed its name in the past year, at least 50 per cent of the revenue for the preceding full year should be accounted for by the new name suggested.

This provision has been inserted to ensure that a company does not change its name to reflect the latest ‘sunrise sectors' without actually having any operations.

The size of a proposed IPO should not exceed five times the pre-issue net worth of the company, the committee said. This will prevent companies from raising unmanageably large amounts.

The committee has also said even if any of the criteria listed above is not met, a company can make an IPO provided the issue is made only through the book-building process and at least 40 per cent of the issue is allotted to qualified institutional buyers. The current guidelines peg the limit at 60 per cent.

Alternatively, a firm should have at least 15 per cent participation by financial institutions and scheduled commercial banks, of which at least 10 per cent should come from the appraisers.

In addition, a company will have to ensure that there are at least 1,000 allottees in its issue. This is mandatory to ensure a wider holding.

Unshackling

• A firm with net tangible assets of Rs 3 crore in each of the immediate preceding two  years can float IPO.
• Minimum post-issue capital pegged at Rs 10 crore.
• A firm should also have a net worth of at least Rs 1 crore in each of preceding 2 years.
• The size of an offer should not exceed five times the pre-issue net worth of a company.