SEBI Proposes Relaxation In Equity Dilution Norms For Large IPOs
The headquarters of the Securities and Exchange Board of India in Bandra-Kurla Complex, Mumbai, India. (Photographer: Sajeet Manghat/BloombergQuint)

SEBI Proposes Relaxation In Equity Dilution Norms For Large IPOs

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The Securities and Exchange Board of India 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% 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% shareholding in initial public offering.

In view of the proposal, SEBI said there could be a scenario where large issuers may not be compliant with 10% minimum public shareholding at the time of listing.

Accordingly, the regulator recommended that minimum public shareholding of 10% should be achieved in 18 months by such issuers and 25% within 3 years from the date of listing.

Further, the regulator has suggested to provide additional time to comply with MPS of 25% in case of very large issuers with post issue market capitalisation of Rs 1 lakh crore and above.

For such issuers, it has been proposed that minimum of 10% should be achieved in two years and 25% within five years from the date of listing, the SEBI said in a consultation paper.

Currently, companies need to achieve MPS of 25% within three years of listing.

Also read: SEBI Asks NSE To Increase Investor Protection Fund Corpus, Implement Standard Operating Procedure

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% of post issue market capital exceeding Rs. 10,000 crore," the regulator noted.

SEBI has sought comments from public till Dec. 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% 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% of post-issue market capitalisation 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.

Also read: SEBI Amends Guidelines On Preferential Allotment By Listed InvITs

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 hasincreased 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.

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