What will you use the money for? Sebi makes it tough for firms eyeing IPO

Sebi has upped scrutiny of issue documents filed by companies going public, a Reuters report said. The surging stock market has prompted nearly 50 companies to launch public issues in 2023; eight issues have been completed so far this year and another 40 are waiting for clearance from the Securities and Exchange Board of India (SEBI).

"The regulator has returned at least six public offer documents, as SEBI observed companies are misleading in their reasons for fundraise," the report citing sources claimed. 

The regulator is particularly scrutinising what companies say they intend to use funds raised from the IPO for.

SEBI did not respond to an email. BT could not independently verify the report. 

As per SEBI rules, funds raised via IPOs can be used for capital expenditure, debt reduction, general corporate purposes and acquisitions.

If funds are used to reduce debt, promoters will have their shares locked in for 18 months. However, if funds are being raised for capital expenditure, promoters have a three-year lock-in period.

'Promoters' is a regulatory classification in India that includes large shareholders who can influence company policy.

"By saying the company is using funds to retire debt, they (promoters) are circumventing the law and reducing the share lock-in period from three years to 18 months," the first person said.

SEBI is reportedly seeking a detailed break-up of whether IPO proceeds are being used to retire debt taken for capital expenditure.

"This is making disclosures fairly cumbersome," they added.

Earlier this month, Sebi said it was investigating three IPOs for allegedly inflating the number of subscriptions received.

SEBI is working on measures to curtail such malpractices, chairperson Madhabi Puri Buch said.