Market regulator Securities and Exchange Board of India (Sebi) has proposed lesser stake dilution and more time for compliance with minimum public shareholding norms. Moneycontrol had reported on July 24 that Sebi may allow IPO of big companies with less stake dilution. Sebi has issued a consultation paper with some tweaks after advice of its primary market advisory panel and internal discussions. In a consultation paper issued on Monday, based on industry inputs, the tweaks have been suggested as a relaxation for large issuers with a post-issue market cap of more than Rs 50,000 crore.
Sebi, in its consultation paper, proposed that for IPOs with a post-issue market cap above Rs 50,000 crore but not more than Rs 1,00,000 crore, the minimum issue size will be Rs 1,000 crore plus at least 8 percent of the post-issue share capital. Currently, it is 10 percent of the issue size. For such issues, the minimum public shareholding (MPS) of 25 percent is to be achieved within 5 years from the date of listing instead of 3 years at present.
For issues of Rs 1,00,000 crore but not more than Rs 5,00,000 crore, the minimum issue size will be Rs 6,250 crore plus at least 2.75 percent of the post-issue share capital. For such large issues, the timeline for achieving the minimum public shareholding (MPS) is also proposed to be extended. The Sebi paper has proposed that in case public shareholding on the date of listing is less than 15 percent, MPS of 15 percent should be achieved within 5 years and 25 percent within 10 years. In case the public shareholding is above 15 percent on the date of listing, MPS of 25 percent should be achieved within 5 years from the date of listing. Existing norms say MPS of 10 percent should be achieved within 2 years and 25 percent within 5 years from the date of listing.
For issues of more than Rs 5,00,000 crore market cap post issue, Sebi has proposed that the minimum stake dilution should be Rs 15,000 crore plus at least 1 percent of post-issue share capital, subject to a minimum dilution of 2.5 percent of post-issue share capital. The minimum public shareholding compliance timeline for such large issues is also proposed to be extended. The Sebi paper says that in case public shareholding is less than 15 percent on the date of listing, MPS of 15 percent should be achieved within 5 years and 25 percent within 10 years from the date of listing. If public shareholding is above 15 percent on the date of listing, MPS of 25 percent should be achieved within 5 years from the date of listing.
Sebi, in its paper, justified the proposed tweaks and noted that as the size of IPOs is increasing year on year, flexibility in terms of minimum issue size and timelines to achieve public shareholding for large companies has become challenging. Hence, the need was felt to review the provisions of the Securities Contracts (Regulation) Rules, 1957 (SCRR). Therefore, a recommendation by the Sebi board needs to be considered to amend the SCRR by the Ministry of Finance. An amendment in the SCRR will provide flexibility to large companies in meeting the requirements of minimum offer size and timelines to achieve public shareholding.
Sebi has sough public comments on the proposal by September 8.
Sebi noted, “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 investment opportunities for Indian investors.”
The Sebi paper further said, “Such large issuers also face challenges in meeting the MPS requirements within the prescribed timelines. Issuers that dilute only 5–10 percent of their share capital at the time of the IPO are required to dilute an additional 15–20 percent of their share capital within 5 years of listing.”
The Sebi paper highlighted the challenges faced by larger and profitable companies having substantial cash reserves, that are not in a high-growth phase and lack the need to raise significant capital at regular intervals. Similarly, Public Sector Undertakings also encounter difficulties in adhering to the minimum public shareholding timelines.
In a consultation paper, the regulator has proposed tweaking the post-issue market capitalisation threshold also. The existing threshold of Rs 4,000 to the Rs 1,00,000 market cap has been bifurcated into two parts. The proposed parts are Rs 4000 to Rs 50,000 crore and another of Rs 50,000 crore to Rs 1,00,000 crore. Res of the thresholds will remain unchanged.
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