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Abstract
The initial public offering (IPO) of an Indian clothing company, this month, was the first Indian equity offering to include a safety net provision since 2006. It has called into question the Securities and Exchange Board of India's (Sebi) proposed safety net norms. Last September Sebi released a discussion paper on a mandatory safety net mechanism for IPO valuation. The safety net is designed with a redemption floor to protect individual retail investors. Local counsel criticised the proposals under the premise that those investing in equities should understand the risk involved. Regardless the market is rolling out this scheme. The red herring prospectus for the IPO of Sai Silks includes a safety net scheme very similar but stricter than that described by Sebi in its consultation paper. Counsel are concerned that it might be seen as a model for future issuers. Under the Sai Silks scheme, if the market value of the equity shares falls below at the issue price at any point during the six-month scheme period, the providers will buy originally allotted equity shares at the issue price, with a maximum of 1000 equity shares per investor.