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SEBI issues consultation paper on IPO equity dilution condition

The capital markets regulator seeks to reduce the equity requirement from 10 percent to 5 percent for IPOs with more than Rs 10,000 crore as post-issue capital. The paper will be open for feedback till December 7.

November 20, 2020 / 09:30 PM IST

The Securities and Exchange Board of India (SEBI) has issued the consultation paper for considering equity dilution requirement from 10 percent to 5 percent for Initial Public Offers (IPOs) that have more than Rs 10,000 crore as post-issue capital.

The consultation paper was issued on November 20, and it will be open for feedback from the general public till December 7.

On November 10, Moneycontrol had reported that such a move was likely.

SEBI has also proposed to increase the timeline for maintaining minimum public shareholding from 3 years to 5 years for IPOs with more than Rs 10,000 crore, post-issue capital.

Why the consultation paper?


According to the consultation paper, the securities market, including the IPO market, is dynamic and needs to keep pace with evolving conditions.

To address the concerns of various market participants, especially the investing community and the issuers, regulations governing the primary market have been amended from time to time.

Market participants have provided the feedback that compliance with the minimum offer to public requirement i.e., at least 10 percent of post-issue, paid-up capital calculated at offer price (also referred to as ‘post issue MCap’) in terms of Rule 19(2)(b) of Securities Contracts (Regulation) Rules, 1957 (SCRR) is cumbersome for large issuers.

It was represented that such large issuers already have investments by PEs /other strategic investors who are classified as public shareholders, post-listing, and, therefore, mandating a minimum 10 percent post-issue capital at the time of IPO leads to unnecessary dilution of holding of the promoter/ existing shareholder and is therefore a constraining factor for listing.

According to a SEBI study, “Based on the analysis carried out in respect of public issuances since 2010, it has been observed that the average issue size of IPO/OFS on the main board has increased in the last decade, while the number of issuers coming for IPO/OFS has declined".

Further, in case of very large issuers (with post-issue capital of Rs 1,00,000 crore and above), there is a possibility that they may find it difficult to comply with the minimum public shareholding of 25 percent within 3 years of listing.
Tarun Sharma
first published: Nov 20, 2020 08:27 pm

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