Released on: January 22, 2008, 4:51 am

Press Release Author: Alan Peter

Industry: Financial

Press Release Summary: Instances have happened in our country where investors have
withdrawn their applications in an IPO

Press Release Body: Lot of pressure was put on the share brokers and investors with
20 per cent fall in market value as a result sharp decline in the last three days.
As a result of the squeeze investors were hard pressed for cash. They got some
relief with Finance Minister and RBI assuring them that all legitimate requirements
will be met. Some of the investors also rushed to cash in huge amounts invested in
recently issued IPOs including Reliance Power. Under rules the investors are allowed
to with their investment till the stock is listed. This had been the case in some
earlier issues also like Deccan Air and Cairn Energy.

In an IPO, companies invite applications for shares sought to be enlisted by them in
a Stock Exchange. The subscription in an IPO can either through book-built process
by inviting bids from the prospective investors or on a fixed price basis. Issue of
securities in an IPO is, inter alia, governed by SEBI (Disclosures and Investors
Protection) Guidelines, 2002 - popularly known as SEBI DIP Guidelines.
SEBI DIP Guideline at Para no 11A.7.7 also provides that an applicant can withdraw
applications in a public issue. Thus, in a book-built issue the applicants can
withdraw their applications anytime before allotment of shares / securities by the
company. This is emanating from the fundamental principle under Law of Contracts
that an offer can be revoked before acceptance. The bids made by the bidders
(applicants) is an offer made and allotment of securities by the companies only
brings into a binding contract between the bidder and the company and, therefore, an
application in a public issue can be withdrawn by the applicant depending upon the
market scenario post subscription/closure of the IPO but before allotment even if
the application money has been realized by the company. However, as per Clause
11.3.4.1 of the SEBI DIP Guidelines, only Qualified Institutional Bidders (QIBs) are
not allowed to withdraw their bid after the closure of the bid. This is to prevent
any possible manipulation of the IPO subscription by the QIBs.

Instances have happened in our country where investors have withdrawn their
applications in an IPO. IPO made by Purvankara Projects, Deccan Airlines, Cairn
Energy, Housing Development Infrastructure Limited, IVR Prime, KPR Mills, have seen
withdrawal of applications by retailers and HNI categories before allotment.


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