The primary market advisory committee-appointed group had recommended the book-building route for mid-cap companies and suggested norms of tangible and non-tangible assets as the eligibility criteria for raising capital to check the menace of fly-by-night operators.
The Sebi board is expected to approve these norms on Friday, said sources.
Sebi has already announced some of the measures in the form of redefinition of retail investor and reforms in the book-building process on Wednesday.
Sebi officials, however, refused to comment on the agenda of the Fridays board meeting.
One of the important recommendations of the sub-group pertained to the issue size, which should not exceed five times the pre-issue networth of the company. This is to prevent the company from raising large, unmanageable amounts. If the company cannot meet these criteria, it can still make an IPO, but only through the book-building route, it said. At least, 40 per cent of the issue size should be dedicated to qualified institutional buyers (QIBs), failing which, the full subscription should be refunded by the issuer company. If a book-building issue is not possible, then the company has to ensure that the project should have at least 15 per cent participation by financial institutions (FIs)/scheduled commercial banks, of which at least 10 per cent should come from the appraisers to lend credibility to the issue.
According to merchant banking sources, if the Sebi board approves the recommendations it will help mid-cap companies to raise capital through the book-building route.
To check the growing menace of fly-by-night operators, who made a killing in the IPO boom of 1993-95, the group has suggested that as on the date of filing of the draft offer document (OD) with Sebi, the company should have net tangible assets (NTAs) of at least Rs three crore in each of the preceding two full years (of 12 months each). Of this, not more than 50 per cent is to be held in monetary assets, provided that if more than 50 per cent is held in monetary assets, the company should have a firm commitment to deploy such excess monetary assets in its business/project so that the existence of the company can be ensured.
To ensure that promoters do not take undue advantage of the sunrise sector by changing the name of the company, the group has suggested that in case the issuer company has changed its name within the last one year, at least 50 per cent of the revenue for the preceding one full year should be accounted for by the activity suggested by the new name. This is to ensure that the company has not changed its name with the sole purpose of reflecting the latest sunrise sector without actually having any operations in that area. It has also said that companies intending to come out with an IPO should also have a net worth of at least Rs one crore in each of the preceding two full years.
Another important recommendation of the group relates to the post-issue capital of the company. It said the minimum post-issue, face-value capital of the company should be Rs 10 crore to ensure that for these types of companies, there is a reasonable size of listed capital to ensure liquidity. Suggesting an alternative mode of providing continuous liquidity, the group has recommended that the company should provide market-making facility at least for a period of two years from the date of listing of the shares. In addition, to ensure public character and wider holding, the group has recommended that the company should also satisfy the criterion of having at least 1,000 allottees in its issue.