Amid the ongoing IPO mania, the Securities and Exchange Board of India (SEBI) is looking to tighten the IPO rules and has proposed a host of measures, including limiting the funds earmarked for inorganic growth initiatives and general corporate purpose (GCP) to up to 35 per cent of the fresh issue size.
The markets regulator has released a consultation paper for review of certain aspects of public issue framework and sought comments on it.
In the consultation paper, SEBI said that in some of the draft offer documents, issuer companies are proposing to raise fresh funds for objects where object is termed as 'Funding of Inorganic Growth Initiatives', which includes future acquisitions, investing in new business initiatives and strategic partnerships by the company without identifying the target acquisition or specific investments proposed to be deployed out of issue proceeds, at the time of filing offer document.
"However, raising fund for unidentified acquisition leads to some amount of uncertainty/ ambiguity in the IPO objects. These uncertainties about the objects of the issue increase further in case a major portion of the fresh issue portion is earmarked for such unidentified acquisition, especially given that issuer companies already have flexibility to earmark up to 25 per cent of the fresh issue size under GCP, under the extant regulations," it said.
Accordingly, it has proposed to prescribe a combined limit of up to 35 per cent of the fresh issue size for deployment on such objects of inorganic growth initiatives and GCP, where the intended acquisition/ strategic investment is unidentified in the objects of the offer.
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However, such limits will not apply if the proposed acquisition/ strategic investment objective has been identified and suitable specific disclosures about such acquisitions/ investments are made at the time of filing of offer document.
Besides, SEBI has also proposed that for IPOs of companies where there are no identifiable promoters, divestment of stake by significant shareholders, holding more than 20 per cent shares, should be capped at 50 per cent of their pre-issue holding.
"Further, for such significant shareholders who are selling through OFS (offer for sale) in IPO, their remaining post issue shareholding can be locked-in for a period of 6 months from the date of allotment in IPO," the consultation paper said.
The regulator is also looking to lock-in shares allotted to 50 per cent of anchor investors for 90 days as against a 30-days lock-in period currently. It has also proposed that issue proceeds earmarked under GCP be brought under monitoring. "The utilisation of GCP amount by the issuer company may need to be disclosed in the quarterly Monitoring Agency report," it said.
The consultation paper comes at a time when the IPO market is upbeat amidst a buoyant equity market. As many as 49 companies have floated their IPOs to raise about Rs 1.01 lakh crore so far in 2021.
SEBI has given time till November 30 to the general public for sending comments through e-mail or post on the proposed rules.
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