SEBI Board Meet: Mega IPOs get relaxation in issue size, MPS compliance timeline

SEBI Chairman Tuhin Kanta Pandey

The Securities and Exchange Board of India (SEBI) has amended the rules to make it easier for large companies to launch initial public offers (IPOs) with relatively small equity dilution.

For companies with a post-issue market capitalisation between Rs 50,000 crore and Rs 1 lakh crore, the regulator has allowed a minimum public offer of Rs 1,000 crore and at least 8 percent of the post-issue market cap. Currently, such issuances required at least 10 percent dilution.

Further, the timeline for achieving minimum public shareholding (MPS) for such IPOs has been extended from the current requirement of three years to five years from the date of listing.

Further, for companies with a post-issue market capitalisation between Rs 1 lakh crore and Rs 5 lakh crore, the minimum public offer size has been fixed at Rs 6,250 crore and at least 2.75 percent of the post-issue market cap. The period for complying with MPS requirements has been extended to five years to reach 15 percent and 10 years for 25 percent public holding.

Thereafter, for companies with a post-issue market capitalisation of more than Rs 5 lakh crore, the minimum public offer size has been fixed at Rs 15,000 crore and at least 1 percent of the post-issue market cap, subject to a minimum of 2.5%. The period for complying with MPS requirements has been extended to five years to reach 15 percent and 10 years for 25 percent public holding.

Interestingly, the regulator has also proposed extending the new timelines for listed entities that are yet to comply with the MPS norms.

In August, SEBI had floated a consultation paper proposing that large companies with a post-listing market cap of Rs 50,000 crore and above be allowed to list with lower stake dilution and be given more time to comply with minimum public shareholding (MPS) norms.

“Feedback from stakeholders suggests that large issuers face challenges in undertaking substantial dilution of equity shares through IPOs, as such large offerings may be difficult for the market to absorb. These constraints can act as a deterrent for large issuers from considering listing in India, thereby limiting the investment opportunities for the Indian investors,” stated the SEBI consultation paper.

“Further, such large issuers also face challenges in meeting the MPS requirements within the prescribed timelines. Issuers, that dilute only 5-10% of their share capital at the time of the IPO are required to dilute an additional 15-20% of their share capital within 5 years of listing,” it had added.

The SEBI paper had further highlighted that for large issuers, diluting substantial stake through an IPO can pose challenges, as the market may not be able to absorb a large supply of shares, which in turn may discourage such issuers from pursuing listings in India.

“Additionally, mandating substantial equity dilution for meeting the MPS requirements, immediately after the IPO can lead to an oversupply of shares in the market. This anticipation of further dilution may impact the share prices, despite strong company fundamentals, and may adversely impact existing public shareholders,” it had said.

“As the size of IPOs is increasing year on year the flexibility in terms of MPO (Minimum Public Offer) and timeline to achieve the MPS for large issuers may be considered. Thus, in light of the above rationale, it is felt that the Board may consider making recommendation to the Ministry of Finance to amend SCRR to provide flexibility to the large issuers in terms of reviewing the requirements of MPO and timelines to achieve the MPS,” it had added.

Mrugank Paranjape, Managing Partner, MCQube and ex MD&CEO, MCX said continuing the theme of Ease of Doing Business, SEBI's new norms on IPOs moves India at par with global norms. This will ensure larger flow of IPOs to the domestic market through IPOs. But the regulator must ensure that the liquidity is monitored post listing. Further the Institutional depth is also likely to increase due these measures. All welcome steps in increasing cash market depth at the right time given the focus in curtailing derivative participation, Paranjape added.