The Securities and Exchange Board of India may make significant changes in the norms for Initial Public Offers (IPOs) to allow a smaller float for large issues, which will help large companies like state-run Life Insurance Corp and tech-based firms.
The new norms, are expected to be discussed on Feb 17 in which Sebi is taking up several important issues including the gold spot exchange, investor charter and strict norms to make independent directors more accountable.
Under the prevailing IPO norms, if the post-issue capitalisation is more than Rs 4,000 crore, the dilution requirement is 10%. For Rs 1,600 crore to Rs 4,000 crore, it is Rs 400 crore, and for smaller IPOs, it is 25%.
Under the proposed new norms, companies with post-issue valuation of Rs 10,000 crore to Rs 1 lakh crore may be required to dilute Rs 1,000 crore plus 5% of the value exceeding Rs 10,000 crore.
For example, if the market capitalisation is Rs 1 lakh crore it would have to dilute stake worth Rs 1,000 crore plus 5% of Rs 90,000 crore (the value in excess of Rs 10,000 crore), which adds up to Rs 5,500 crore.
For a market value of higher than Rs 1 lakh crore, the requirement would be 2.5% in addition to Rs 1,000 crore, which makes the issue much smaller and manageable than under the current norms that require a float of 10%.
Further, companies with a valuation of over Rs 1 lakh crore may be given five years, instead of the current three years, to comply with the 25% minimum public shareholding norms.
The changes are expected to boost the capital market. “The dilution in minimum public norms has been in the offing for a while and is a welcome move. While the immediate benefit will be the LIC IPO, this move will generally boost capital markets by facilitating larger IPOs. As far as tightening of accountability for independent directors is concerned, SEBI should take a balanced view and clearly lay down what is expected from independent directors” said Vikram Raghani, JSA Partner.
Sebi issued a discussion paper on November 20. Moneycontrol was first to report on November 10.
This meeting will be chaired by Finance Minister Nirmala Sitharaman. This board meeting is customary meeting which happens every year after the union budget. However, Sebi is taking up several important issues.
The regulator may discuss strict norms for independent directors in this board meeting. It has received several complaints about corporate governance in listed companies. So, the regulator has a plan to revamp nominations and remuneration committee framework. A source who is advising Sebi on this told Moneycontrol “Sebi wants to make independent directors more accountable in listed companies. Sebi is receiving several complaints against independent directors where they have not acted on time despite of knowing wrong doings in the company”.
Sonam Chandwani, Managing Partner, KS Legal and Associates, said: “Many people applauded the effort of the government when it introduced stringent corporate governance standards coupled with a strict liability regime for independent directors by amending Companies Act. On the other, it wasn't taken well with various individuals willing to be appointed as Independent Directors, as they thought it was time they were trained rather than tested”.
Another item on the agenda of the meeting is repealing underwriters Regulations. In India, IL&FS Finance Service Limited and State Bank of India are the only two official underwriters since the inception of Sebi. However, merchant bankers and stock brokers can also act as an underwriter. A source close to development told Moneycontrol “In the process of ease of doing business, regulator is repealing regulation which has become obsolete”.
Sebi board may discuss changes in delisting norms and approve methods of declassification of promoter.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
