Sebi proposes relaxation in equity dilution norms for large IPO issues

By: |
November 20, 2020 6:33 PM

At present, all companies with a post-issue capital above Rs 4,000 crore are compulsorily required to dilute at least 10 per cent shareholding in initial public offering (IPO). In view of the proposal, Sebi said there could be a scenario where large issuers may not be compliant with 10 per cent minimum public shareholding (MPS) at the time of listing.

The amount of money, prima facie, observed to have been collected by the company was Rs 96.6 lakh from investors through such services.The amount of money, prima facie, observed to have been collected by the company was Rs 96.6 lakh from investors through such services.

Markets regulator Sebi on Friday proposed to reduce the minimum offer size in an initial share-sale, whereby companies with a post-issue capital of above Rs 10,000 crore would be required to offer at least 5 per cent stake in IPO.

At present, all companies with a post-issue capital above Rs 4,000 crore are compulsorily required to dilute at least 10 per cent shareholding in initial public offering (IPO). In view of the proposal, Sebi said there could be a scenario where large issuers may not be compliant with 10 per cent minimum public shareholding (MPS) at the time of listing.

Accordingly, the regulator recommended that MPS of 10 per cent should be achieved in 18 months by such issuers and 25 per cent within 3 years from the date of listing. Further, the regulator has suggested to provide additional time to comply with MPS of 25 per cent in case of very large issuers with post issue market capitalization (MCap) of Rs 1 lakh crore and above.

For such issuers, it has been proposed that minimum of 10 per cent should be achieved in two years and 25 per cent within five years from the date of listing, the Securities and Exchange Board of India (Sebi) said in a consultation paper.

Currently, companies need to achieve MPS of 25 per cent within three years of listing. Sebi noted that securities market, including the market for IPOs, is dynamic and needs to keep pace with the evolving market condition.

“It is proposed to reduce minimum offer to public for large issuers to 5 per cent of post issue market capital exceeding Rs. 10,000 crore,” the regulator noted. Sebi has sought comments from public till December 7 on the proposals.

The regulator said that market participants have provided feedback that the compliance with minimum offer to public requirement — at least 10 per cent of post issue paid up — is cumbersome for large issuers. It has been represented that such large issuers already have investments by private equity or other strategic investors, who are classified as public shareholders.

Moreover, mandating minimum 10 per cent of post issue MCap at the time of IPO leads to unnecessary dilution of holding of the promoter or existing shareholder and is therefore a constraining factor for listing, market participants said.

According to an analysis carried out in respect of public issuances since 2010, it has been observed that the average issue size of IPO or OFS on main board has increased in the last decade, while the number of issuers coming for initial share-sale or offer-for-sale on the main board has declined, Sebi said.

This trend of larger issuances is expected to continue, it added.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1IEX expands Green Market; Adds daily, weekly contracts
2Non-basmati rice export to Bangladesh may result in higher paddy prices
3Stocks in focus: Reliance Communications, HDFC Bank, State Bank of India, UltraTech Cement, IndiGo