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The community consisting of promoters and their merchant bankers being ingenious have found new ways and have started creaming the system. This if not checked would be extremely detrimental to the capital market fund raising system in the medium to long term.

In the mother of all IPO from LIC one saw that the total number of applications as per the exchanges on the last day of bidding was 73.37 lakh applications. The final number which was sent for banking or received by the registrar was down to 61.33 lakhs. Roughly one in six applications was not banked for various reasons. This is a high number and a cause for worry. However, what happened in the case of Prudent Corporate Advisory Services Limited was a shocker and needs to be studied as a test case for all capital market enthusiasts, intermediaries, regulators and above all investors.

Prudent Corporate Advisory Services Limited or Prudent had tapped the capital markets with its offer for sale of 85,49,340 equity shares in a price band of Rs 595-630. The issue was open between May 10 and 12. The primary business of the company is a distributor of mutual fund products. It also has a large base of ARN's or authorised representatives or simply explained sub-brokers. This makes Prudent a B2B and a B2C player. The company is the 3rd highest in terms of retail AUM. It has 23,262 channel partners and 13.51 lac clients.

The issue was considered expensive by most analysts and the company was expected to have a tepid response. On day one of bidding the retail portion was subscribed over 72 per cent and moved on more or less equally to end day three at 1.29 times. The issue garnered 1,53,381 applications and the retail portion saw bids of 38.01 lac shares. The overall issue was subscribed post the anchor allotment at 1.22 times and received bids for 73,20,969 shares. So far so good.

The basis of allotment advertisement which was issued on the day of listing on May 20 had very interesting data. The number of applications received by the registrar had dropped dramatically to 42,868 and the number of shares bid to 71,34,30 shares. This number includes anchor investors. If one were to reconcile with the bidding on the exchanges, the corresponding number would be 42,844 applications for 43,56,476 shares. The discrepancy, a massive 1,10,537 applications or 72.06 per cent of the applications bid on the system for 19,64,493 shares. This is illogical and needs to be examined. Was the system being creamed to give a feeling that there was great demand for the issue and it was oversubscribed when reality was that the issue was yet to get subscribed?

The reality. Retail investors applications received by the registrar were just 41,753 for a mere 11,68,584 shares. Of these, 2,203 applications for 63,342 shares were rejected by the system. There is nothing that could alarm in this rejection, this is quite normal.

The final outcome is the startling point. The issue for 85.49 lac shares which was oversubscribed 1.22 times, remained undersubscribed. The company finally allotted 68,08,820 shares. The shortfall was a massive 17,40,520 shares or 20.35 per cent of the issue size.

For the records, the share lost Rs 67.30 or 10.68 per cent to close at Rs 562.70 on the BSE at end of trading on day one. The high and low of the stock was Rs 660 and Rs 541.15.

The three merchant bankers to the issue were ICICI Securities Limited, Axis Capital Limited and Equirus Capital Limited. If the information of subscription of just about 80 per cent would be publicly known, the response could have been even poorer and the issue have to be extended with a change in the price band. This is a very serious issue as the entire planning has been done with an intention to create a false atmosphere about the demand in the mind of retail investors and make the issue go through. Who benefited is clear? The modus operandi of systematically bidding for shares on the system on all three days so that the mirage is created should be checked and the guilty brought to book. While no one is guilty until proven, a matter as serious as this, warrants urgent action from the stock exchanges and the regulator.

The persons whose applications have been bid for and then willingly or unwillingly not banked cannot be random in nature. This is concentrated in nature and a genuine database has been used to create over 1.1 lac applications. Detecting this would be a piece of cake for the exchanges. Once the guilty are identified, an option should be given to retail investors who have lost money in the IPO that their shares be bought back at the IPO price by the selling shareholder provided they have not sold as yet. Further, till this system is streamlined the association of investment bankers must work closely with the exchanges and SEBI to plug the gap, and as per their suggestion ensure that no further IPOs be allowed to be launched until the above issue is resolved.

Finally, the Finance ministry must take action on a 'ASAP' basis as the credibility of the entire capital markets is now at stake. No one must be spared come what may.