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IT cos use safety net for IPOs

Our Bureau

CALCUTTA, April 22

IN a scenario where south-bound stocks are telling on sentiments in the primary market, some IT companies are using `safety net' to attract individual investors, courtesy merchant bankers who are willing to back their moves.

After Softpro Systems Ltd, it's time for the Chennai-based Omni Ax's Software Ltd to offer a similar scheme to successful allottees. Systematix Corporate Services, the lead manager to Omni Ax's forthcoming capital issue, has decided to furnish a bank gua rantee of Rs. 93.75 lakhs to the Bombay Stock Exchange for this purpose. Softpro Systems also successfully leveraged the concept of safety net.

Such schemes, primary market sources observe, are beneficial to the small investor as they provide protective coverage in the form of an exit route. According to Mr. Tarun Sethia, a primary market distributor in Calcutta, certain recent developments have made safety nets important.

A number of IPOs, some of them considerably oversubscribed, have started quoting below their issue prices. These include Shri Rama Multi-Tech and Telesys, both of which were received enthusiastically by the market. Given this trend, it is necessary that investors are assured of the safety of their principal, Mr. Sethia says.

The salient features of Omni's safety net are :

W The scheme, open only to resident individuals who are original allottees, would be limited to a maximum of 1,000 shares per allottee, and to the extent of 6.25 lakh shares on a first-come, first-served basis ;

W It would remain open for six months from the date of allotment. It would close on the expiry of six months or on completion of purchase of 6.25 lakh shares, whichever is earlier.

W Transactions would be completed and deemed to be on the basis of `spot delivery transaction'. This would be subject to the provisions of Securities Contracts (Regulation) Act, and rules made thereunder.

W The intending seller would be required to give an unconditional warranty of the title in respect of shares which are offered for sale. These should be free from claims and charges. In case there are defects in an allottee's signature or in the title, t he latter (whose offer is accepted) should indemnify the merchant banker or its nominees for losses or damages arising from such defects.

Market sources wonder whether the scheme will also cover those who might opt for dematerialised allotment. The Omni offer document does not clarify this point.

The issue, which seeks to raise Rs. 7.12 crores, is for financing expansion projects -- software development & training, and opening of offices in India, Singapore and the US. The issue price is Rs. 15 per share (face value Rs. 10 and premium Rs. 5). Th e merchant banker has agreed to pay the same Rs. 15 per share to sellers.