SEBI's New Norms For Large IPOs Come Into Effect

A gong is struck during a company's listing ceremony at the Hong Kong Stock Exchange in Hong Kong, China. (Photographer: Anthony Kwan/Bloomberg)

SEBI's New Norms For Large IPOs Come Into Effect

The markets regulator has made it easier for very large companies to launch initial public offers.

Amendments have been notified to the securities contract regulations, effective June 18, which considerably relax the minimum public shareholding norms for large issue sizes.

These are progressive amendments which recognise that Indian companies are now bigger than they previously were and hence this is a dynamic amendment by the Securities and Exchange Board of India, Yash Ashar, partner at Cyril Amarchand Mangaldas, said.

The regulatory framework prescribes a minimum public offering to be made by a company according to its post-issue capital upon listing (calculated at offer price).

So far, for companies with a post-issue capital of above Rs 4,000 crore, the minimum public offer size was 10% of shares. That meant, a company with a post-issue capital of Rs 4,500 crore, calculated at offer price, would have to offer shares worth at least Rs 450 crore to public.

For large sized-companies coming to the market, say Life Insurance Corporation that's expected to have a post-issue capital of over Rs 1 lakh crore, a minimum 10% float would mean making a very large IPO.

The amendment reduces that burden. Now, companies which upon listing will have a market value greater than Rs 1 lakh crore will have to make an offer of minimum of Rs 5,000 crore and 5% of shares.

Large issuers were increasingly facing difficulty in meeting subscription levels to achieve 10% minimum public shareholding, said Richa Chaudhary, partner at Trilegal.

Generating demand was one challenge. Utilisation of such large funds was another challenge too, she said. The amendment aims to cure this.

This will go a long way in enabling companies with large market capitalisation to undertake initial public offerings and meet minimum public shareholding requirements effectively without having to mandatorily undertake a very large offer.
Richa Chaudhary, Partner, Trilegal

Moin Ladha, partner at Khaitan & Co., said the timing of the amendment could not have been more opportune. There are multiple large-sized public IPOs in the offing for which this reduced 5% requirement will be a significant and substantial benefit, he said.

The amended regulations also stipulate a new timeline for such companies to meet the minimum public shareholding norms — that is, at least 10% public shareholding within two years and at least 25% within five years of listing.

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