IPOs: SEBI Plans To Tighten Capital And Disclosure Requirements
SEBI has mooted changes to tighten regulations on capital and disclosure requirements even as India sees a record year of fundraising via initial public offerings.
A consultation paper issued by the Securities and Exchange Board of India on Nov. 16 has identified four key areas that would require revision.
Stakeholders can share their comments with the regulator till Nov. 30.
Here are the proposals:
35% Limit For Inorganic Growth Initiatives, GCP
Many companies, especially asset-light new-age technology firms, raise capital through fresh issues for "Funding of Inorganic Growth Initiatives" in their IPOs.
Raising funds for unidentified acquisitions leads to uncertainty about IPO objectives, and more so if a major portion of the fresh issue is earmarked for it, SEBI said.
Also, issuer companies have the flexibility to earmark 25% of the fresh issue under general corporate purpose or GCP. That, according to SEBI, adds to the problem.
Keeping this in mind, the regulator has proposed a combined limit of 35% of the fresh issue size for inorganic growth initiatives and GCP when the intended acquisition is unidentified.
Divestment By Significant Shareholders To Be Tougher
Issuer companies are required to maintain a minimum promoter holding of up to 20% of the post-issue capital. This is locked in for 18 months after listing.
However, in IPOs of companies with no identifiable promoters, there is no such requirement.
SEBI said there's a need to inspire confidence among potential investors by existing shareholders with a significant stake. This may be particularly crucial for unprofitable companies going public, it said.
SEBI proposed that in IPOs of companies with no identifiable promoters, divestment of stake by significant shareholders holding less than 20% may be capped at 50%.
Lock-In For Anchor Investors
Under the current regulations, shares allotted to anchor investors are locked in for 30 days from the date of allotment.
A longer lock-in for this category will provide more confidence to other investors, SEBI said. There may be a need to review the lock-in period for anchor investors, according to the regulator's primary market advisory committee.
"The concept of anchor investors was introduced to inspire confidence in the issue especially when such investors commit moneys upfront and thus provide an indication of price as well as improve the price discovery during IPO. Other investors may take cue based on the investment decisions of anchor investors."
SEBI proposed that instead of increasing lock-in period for all anchor investors, 50% of the anchor book should be given to those okay with holding shares for 90 days or more.
Use Of Funds Under GCP To Be Disclosed, Monitored
Currently, companies are permitted to specify up to 25% of the fresh issue portion as fundraising for general corporate purpose. The proceeds aren't required to be monitored.
Companies are also not required to disclose any specific objective regarding deployment of these funds.
"It is seen that issuer companies are coming up with issues which are very large in size. Thus, with larger issue size, GCP amount also becomes very substantial in terms of absolute numbers. For e.g., in a Rs 10,000 crore fresh issue, issuer company can have Rs 2,500 crore earmarked under GCP."
There is a need to provide adequate information about the utilisation of funds earmarked under GCP, apart from monitoring it, SEBI said.
The regulator proposed to monitor the proceeds earmarked under GCP. And it suggested that the utilisation of these funds will have to be disclosed in the quarterly monitoring agency report.