Moneycontrol Pro Panorama | Easing capital regulations

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In a strategic move designed to address the issues faced by large firms seeking to raise capital from the primary market, the Securities and Exchange Board of India (SEBI) has introduced significant amendments to the Securities Contracts (Regulation) Rules of 1957. These changes focus on the Minimum Public Offer (MPO) and the timelines for compliance with Minimum Public Shareholding (MPS) requirements, all aimed at enhancing the ease of doing business in India.

SEBI has recognised the challenges faced by larger companies when it comes to listing on the stock exchange. They pointed out that the prospect of diluting a substantial stake through an Initial Public Offering (IPO) can be daunting.

The concern is that such a massive influx of shares may overwhelm the market, deter issuers from choosing India for their listings, and lead to a troubling scenario of price overhang post-listing. This situation could ultimately jeopardise the interests of existing public shareholders, who are at the mercy of fluctuating share prices influenced by ongoing dilution.

To address these issues, SEBI has revised the MPS guidelines and extended compliance timelines for larger firms. Previously, these companies were expected to dilute a minimum of 5-10 percent of their capital during the IPO and an additional 15-20 percent within five years of listing.

SEBI has now acknowledged that such steep upfront dilution could lead to share oversupply, which would adversely affect stock prices — even for fundamentally robust companies. This new understanding has prompted a reassessment of the demands placed on these corporations.

The revised guidelines stipulate different minimum public offers based on market capitalisation. For those companies valued at over Rs 50,000 crore, the minimum public offer is now set at Rs 1,000 crore plus 8 percent. Companies with a market cap between Rs 1 lakh crore and Rs 5 lakh crore must issue at least Rs 6,250 crore plus 2.75 percent, and those with a market cap above Rs 5 lakh crore must issue Rs 15,000 crore plus 1 percent, ensuring a floor of 2.5 percent.

Additionally, the timeline for achieving a mandatory 25 percent public float has been extended to 10 years, providing the much-needed respite for mega listings.

In a further boost to investor participation, SEBI has also increased anchor investor allocations to 40 percent of the IPO size, up from the previous one-third. This allocation will benefit various institutional investors, with 7 percent earmarked for insurance and pension funds while mutual funds will maintain a significant share of 33 percent. The number of anchor allottees will scale with the IPO size, increasing from 5 to 15 for every Rs 250 crore block, broadening access and participation in the process.

As we look towards the latter half of FY26, the Indian IPO market is poised for a remarkable surge. Reports indicate that approximately Rs 2.58 lakh crore worth of IPOs are expected, with Rs 1.15 lakh crore already receiving SEBI’s approval and another Rs 1.43 lakh crore in the pipeline.

By altering dilution norms and accommodating staggered public shareholding, these transformative changes are set to reduce execution risks and position India as an attractive destination for major IPO listings, both domestically and internationally. This approach allows companies to present smaller stakes upfront, which can help mitigate issues of liquidity drains and oversupply.

In opening the Indian market to larger corporate entities both in India and global companies seeking to get listed in India, SEBI is nurturing an investment-friendly atmosphere, an encouraging signal that the stage is set for substantial corporate listings ahead. 

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