Sebi Eases IPO Rules & Extends Shareholding Timelines

Mumbai, Sep 12 (PTI) Stock market regulator Sebi on Friday decided to relax initial public offering (IPO) rules for very large companies and also extend the timeline by up to 10 years for them to meet minimum public shareholding norms.

The move is expected to benefit mega IPOs including that of Reliance Jio Infocomm and the National Stock Exchange (NSE).

The new framework, if implemented, would reduce the immediate dilution burden while still ensuring gradual compliance with public shareholding norms.

Under the new framework, companies with a market capitalisation between Rs 50,000 crore and Rs 1 lakh crore, would be required to float 8 per cent of their equity instead of the current 10 per cent. Such firms would also get a timeline of five years instead of the present three years for achieving minimum public shareholding (MPS) requirement of 25 per cent.

For companies with a market capitalisation above Rs 1 lakh crore, mandatory offer requirements would be reduced to 2.75 per cent from the current 5 per cent, while those above Rs 5 lakh crore would need to dilute only 2.5 per cent.

Such large companies would also be given up to 10 years to achieve the 25 per cent minimum public shareholding requirement, compared with five years at present.

This means companies can list with smaller IPOs initially, while gradually increasing their public shareholding over a longer period, reducing the immediate burden of large-scale equity dilution.

It is expected to help large issues, which often find it challenging to dilute substantial stakes through an IPO, as the market may not be able to absorb such a large supply of shares.

The regulator noted that for large size companies, the revised minimum public offer will still be large enough to provide sufficient stock to the market, including retail investors, and facilitate liquidity.

"Regular dilution post listing impacts issuers until MPS requirements are complied with, may lead to price overhang due to the impending equity dilution, thereby adversely affecting the interest of existing public shareholders," Sebi chairman Tuhin Kanta Pandey told reporters here.

"Further, under the proposed MPO (minimum public offer) requirements, issuers are recommended to be permitted to list with a lower initial public float, hence, an extended period is required to allow them to achieve MPS of 25 per cent in a gradual manner. Extended period for large issues also do not pose risk of low liquidity in large size IPO," he added.

In view of the revised MPO proposal, Sebi said that there is no further proposal to reduce allocation to retail investors in IPO size exceeding Rs 5,000 crore from 35 per cent to 25 per cent. Correspondingly, there is no proposal to increase QIB reservation from 50 per cent to 60 per cent.

To broaden the participation of long-term institutional investors in the IPOs, Sebi has decided to revamp share-allocation framework for anchor investors in companies' maiden public offerings.

The regulator has decided to increase the number of anchor investors permitted for IPOs with an anchor portion exceeding Rs 250 crore, by increasing the existing limit from 10 to 15 per Rs 250 crore.

"The number of permissible anchor investor allottees for allocations above Rs 250 crore has been increased. Thus, a minimum of 5 and a maximum of 15 investors shall be allowed for allocations up to Rs 250 crore. For every additional Rs 250 crore or part thereof, an additional 15 investors are to be permitted, subject to a minimum allotment of Rs 5 crore per investor," the Sebi chief said.

Additionally, Sebi has approved a proposal to merge Category I and II for anchor allocation sizing in a bid to align the framework more effectively with the scale of the current IPO.

Also, Sebi has decided to increase total reservation in the anchor portion from one-third or 33 per cent to 40 per cent. Of this, one-third will continue to be reserved for domestic mutual funds, while remaining will be reserved for life insurance companies and pension funds.

If the 7 per cent reserved for insurers and pension funds remains unsubscribed, it will be reallocated to mutual funds.

At present, reservation in the anchor book is available only to domestic mutual funds, excluding other long-term institutional investors such as life insurance companies and pension funds.

These amendments are expected to broaden anchor investor participation by easing participation for large FPIs operating multiple funds, thus enabling more diversified anchor books and aligning with global best practices.

"In addition, it will provide structured and consistent participation opportunities to long-term institutional investors such as life insurers and pension funds, thereby enhancing credibility, stability, and quality of the anchor book," Sebi said.