SEBI amends rules to tighten IPO framework

At a time when a number of start-ups -- mostly loss-making -- are tapping the public markets to get listed, capital markets regulator the Securities and Exchange Board of India (SEBI) has tightened the disclosure and listing guidelines for such entities as part of its efforts to safeguard the interests of retail investors.

The board of the regulatory watchdog, which met on Tuesday, announced a slew of measures to address some of the issues that were brought to the fore as a number of new-age high growth companies launched their initial public offers (IPOs).

To start with, the regulator has capped the quantum of IPO proceeds that a company could use for inorganic growth, while further segregating the limit to be utilised if an acquisition target has already been identified. 

"Where the issuer company in its offer documents, set out an object for future inorganic growth but has not identified any acquisition or investment target, the amount for such objects and amount for general corporate purpose (GCP) shall not exceed 35% of the total amount being raised," said a statement by SEBI.

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The regulator has further capped the quantum of shares that existing shareholders can sell as part of the IPO if the company is a loss-making one.

Shareholders -- individually or with persons acting in concert -- who hold over 20 per cent of pre-issue stake cannot offload more than 50 per cent of their shareholding as part of the public issue. For those holding less than 20 per cent, the cap has been set at 10 per cent of their pre-issue stake.

This will have a wide impact on private equity and venture capital players who have been offloading their stake as part of IPOs of online and digital majors like Zomato, Paytm, Nykaa and Policybazaar.

Further, credit rating agencies have been allowed as monitoring agencies to monitor utilisation of IPO proceeds.

The regulator has also made it mandatory for issuers to have a 5 per cent gap between the upper and lower end of the price band.

The regulator has also tightened the lock-in norms for anchor investors who were earlier allowed to sell their entire holding after 30 days of allotment.

As per the amendments, such investors can sell half of their shares after 30 days and the balance after 90 days of allotment for all issues opening on of after April 1, 2022.

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According to Yash Ashar, Partner & Head - Capital Markets, Cyril Amarchand Mangaldas, the amendments could impact plans of issuers looking to list on Indian stock exchanges.

"Inability to raise money for future unidentifiable acquisitions would impact capital raising plans of some unicorns, particularly, where such companies may not have any other use of capital and where existing shareholders are not keen to sell," said Ashar.

"Large amount of flexibility to use funds is a hallmark of those listing their equity shares on international stock exchanges and investors vote with their feet when they are not happy with use of such funds, including any new acquisition which they don't like," he added.

Among other things, the regulator has tweaked the framework for allotment of shares to high net worth individuals, pledging of locked-in shares, preferential issues, appointment/reappointment of directors, whole time directors and managing directors.

The regulator has also tightened the norms for mutual funds in cases where a scheme is being winded up.

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