0

0

0

0

0

0

0

0

0

Explained: Sebi tightens norms for utilisation of IPO proceeds; here's what it means for you

Mini

The new rules address how companies set IPO price bands, when anchor investors can sell their shares, disclosures about how the company can spend share sale proceeds. Here's what it means for you

Explained: Sebi tightens norms for utilisation of IPO proceeds; here's what it means for you
Market regulator Securities and Exchange Board of India (SEBI) has approved a host of changes, including those concerning the use of initial public offering (IPO) funds. The changes to IPO come amid a market frenzy for public listing. In 2021, Indian companies raised Rs 1.19 trillion through IPOs.
According to Sebi, the new rules address some of the regulatory gaps that emerged after startups, without a track record of profitability and low founder stakes, were allowed to roll out their IPO.
Changes to IPO norms
The new rules, ratifying proposals made in November 16 discussion paper, restrict large shareholders, with more than 20 percent stakes in the company, from selling more than 50 percent of their holdings on listing day. Till now, large shareholders had the option to sell their entire holding through the offer-for-sale (OFS) route.
However, Sebi has argued that for companies that neither have a profit track record nor an identifiable promoter, a complete exit by large shareholders may lead to a crisis of confidence among investors.
The amendment also bars companies from using more than 25 percent of their IPO proceeds for unidentified acquisitions. Similarly, spending on identified acquisitions has also been capped at 35 percent of the IPO proceeds. Also, rating agencies will now monitor the use of IPO proceeds.
Besides, Sebi has also increased the lock-in period for anchor investors -- the institutional investors who are invited to buy the shares of a company before its IPO rollout to improve the popularity of the issue -- from 30 days to 90 days.
The move, according to the regulator, will prevent share-price volatility and losses for retail investors. However, this rule will come into effect from April 2022 and apply to only 50 percent of the allocation to anchor investors.
In contrast, Sebi has reduced the lock-in period for non-promoter investors in a preferential issue of equity shares from 12 months to six months. The regulator has also said that if the preferential issue leads to a change in control of the company, then a panel of independent directors would be required to provide a “reasoned recommendation” and also their thoughts on all aspects of the preferential issue, including the pricing.
Another crucial change relating to IPO includes furnishing a valuation report in case a company allots more than 5 percent of its shares to any entity. The regulator has also changed the price band norms.
As per new rules, the difference between the floor price and the upper price band should at least be 5 percent.
"In case of book built issues, a minimum price band of at least 105 percent of the floor price shall be applicable for all issues opening on or after notification in the official gazette," read the Sebi notification.
Meanwhile, the new Sebi rules also mandate companies to reserve one-third of the retail investor quota for investors with an application size of more than Rs 2 lakh and less than Rs 10 lakh. The remaining two-thirds of the quota can be offered to investors with an application size of more than Rs 10 lakh.
Mutual Fund
With regard to mutual fund (MF) schemes, Sebi has specified that no MF will now be able to wind up any of its schemes unless the unitholders give their consent through a voting process. According to new rules, the mutual fund companies would have to publish the voting results within 45 days of the publication of notice of circumstances leading to the winding up.
The regulation comes after more than $4 billion worth of assets of nearly three lakh retail investors were stuck for a year as Franklin Templeton MF decided to close its six open-ended debt schemes in April 2020 without taking consent from the unitholders.
next story