Sebi board meeting | IPO norms changed to ease large issues

The Securities and Exchange Board of India (Sebi) on February 17 made major changes in the norms for initial public offerings (IPOs) to allow a smaller float for large issues. The change in norms, including amendments to underwriting provisions and portfolio management rules, is expected to help large companies.

Under the prevailing IPO norms, if the post-issue capitalisation is more than Rs 4,000 crore, the dilution requirement is 10 percent. For Rs 1,600 crore to Rs 4,000 crore, it is Rs 400 crore, and for smaller IPOs, it is 25 percent. At a board meeting chaired by Finance Minister Nirmala Sitharaman, the regulator has approved a five percent dilution requirement, compared to 10 percent at present.

The new norms are expected to be a boost for large issues like Life Insurance Corporation and tech-based companies which may come later this year.

“The Board has decided to recommend changes in the Securities Contracts Regulation Rules for issuers with post-issue market capital exceeding Rs100,000 crores, the requirement of Minimum Public Offer (MPO) be reduced from 10 percent of post-issue market capital (existing provision) to Rs 10,000 crore + 5 percent of the incremental amount beyond Rs 1,00,000 crore,” the regulator has said in a communication.

The regulator had a plan to implement a dilution requirement of 5 percent for post-issue market capitalisation between Rs 10,000 crore and Rs 1 lakh and 2.5 percent for above Rs 1 lakh crore. However, these proposals were not approved by the Sebi board.

In the current framework, issuers with post-issue market capital of at least Rs 4,000 crore or more are required to offer to the public at least 10 percent of post-issue market capital.

Sebi has also relaxed timelines for achieving MPO requirement. As per the Sebi release, “Issuers shall be required to achieve at least 10 percent public shareholding in two years and at least 25 percent public shareholding within five years from the date of listing.”

Currently, companies have to achieve minimum public shareholding in three years’ time.

While the change in rules is expected to help large issues, many market experts are disappointed with it. “I am not a big fan of changes in minimum dilution norms depending on the size of the company and then progressively meeting 25 percent over a period of five years. We have seen how these timelines have not been met in the past, especially by PSEs. It is another example of having different rules for different set of companies whose shares are listed on the exchanges, which is not ideal,” Anil Chaudary, Partner, Finsec Law Advisors, told Moneycontrol.

The market regulator had issued a discussion paper regarding the change in rules on November 20. Moneycontrol was the first to report on the draft proposals.

At the meeting, the Sebi board has also repealed SEBI (Underwriters) Regulations, 1993, and made amendments to SEBI (Merchant Bankers) Regulations, 1992 and SEBI (Stock Brokers) Regulations, 1992.

“The board approved repealing of SEBI (Underwriters) Regulations, 1993 and amendment to SEBI (Merchant Bankers) Regulations, 1993 and SEBI (Stock Brokers) Regulations, 1992 to incorporate provisions related to net-worth, maintenance of records and other regulatory compliances for the underwriting activities. The respective regulations shall permit Merchant Bankers and Stock Brokers to carry out underwriting activities. Therefore, there is no need of having separate regulation for underwriting activities,” the regulator noted.

In order to promote ease of doing business, the Sebi board has approved merger of Regulatory Fee on Stock Exchanges Regulations, 2006, with Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018.

It also approved amendments to SEBI (Portfolio Managers) Regulations, 2020, SEBI (Investment Advisers) Regulations, 2013 and SEBI (Research Analysts) Regulations, 2014. The board noted that the post-graduate programme in the equity market of not less than one year offered by NISM is an eligible qualification for Portfolio Managers, Investment Advisers and Research Analysts.

Recent budget announcements such as gold spot exchange, investor charter and securities code were also discussed at the meeting.