SEBI Approves Changes To IPO And Preferential Allotment Rules
India’s market regulator has tightened disclosure requirements for raising capital from the primary market amid a record initial public offering boom. It also changed rules to improve transparency in preferential allotments while easing mop-up via such share sales.
The board of Securities and Exchange Board of India approved changes that will cap spending on unspecified growth objects while raising funds in an IPO, according to its statement. And SEBI lowered lock-in for promoters in preferential allotments, while adding fresh disclosures.
The regulator also introduced provisions related to appointment or reappointment of directors who fail to get elected. The reappointment of such directors, including a director or managing director, can only be made with prior approval of shareholders, SEBI said in a statement.
Here are the key changes to IPOs and preferential allotment...
IPOs: Spending cap on unspecified inorganic growth objects
The SEBI board has recommended a set of changes that will be applicable for the draft red herring prospectus after the changes are notified in the gazette. These include:
A 35% spending cap from the total amount being raised in the IPO on future inorganic growth and general corporate purpose. The 35% cap will be applicable when the company has not identified any acquisition or investment target.
The amount spent on objects where company has not identified acquisition or investment target shall be limited at 25% of the amount being raised.
When there is an offer for sale by an issuer without a track record, majority shareholders can only sell 50% of their shareholding in the offer for sale. Majority shareholders are those which hold above 20% of the pre-issue shareholding.
Credit rating agencies can act as monitoring agencies for utilisation of money raised in the IPO.
Anchor investors can sell 50% of their shares after 90 days of the IPO. The remaining 50% will be continued to be governed by the current lock-in period of 30 days. The change will be applicable from April 1, 2022.
The minimum price band of at least 105% of the floor price will come into effect after the change is notified in the official gazette.
Changes to preferential allotment:
Valuation report will be needed for change in control and where 5% of post-issue fully diluted share capital allotted to one entity.
In the event of change of control in a company, independent directors will have to provide reasoned recommendations and vote details.
In preferential allotment, the lock-in period for promoters holding up to 20% of the post-issue paid up capital will be reduced to 18 months from the current period of three years.
For promoters holding above 20% paid-up capital, the lock-in period shall be reduced to six months from the current one year.
For non-promoters, the locked-in period for allotments reduced from one year to six months.
Promoters can pledge locked-in shares as pledge for loans only if a such pledge is a specified term for sanctioning of the loan. Such a loan should also be approved by the issuer company for achieving the objects mentioned in the preferential issue.
Share swap backed by a valuation report allowed as consideration for a preferential issue.