Home stock market IPO's Sebi proposes relaxation in equity dilution norms for large IPO issues

Sebi proposes relaxation in equity dilution norms for large IPO issues


Markets regulator Sebi 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 per cent 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 per cent shareholding in initial public offering (IPO).

In view of the proposal, Sebi said there could be a scenario where large issuers may not be compliant with 10 per cent minimum public shareholding (MPS) at the time of listing.

Accordingly, the regulator recommended that MPS of 10 per cent should be achieved in 18 months by such issuers and 25 per cent within 3 years from the date of listing.

Further, the regulator has suggested to provide additional time to comply with MPS of 25 per cent in case of very large issuers with post issue market capitalization (MCap) of Rs 1 lakh crore and above.

For such issuers, it has been proposed that minimum of 10 per cent should be achieved in two years and 25 per cent within five years from the date of listing, the Securities and Exchange Board of India (Sebi) said in a consultation paper.

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

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 per cent of post issue market capital exceeding Rs. 10,000 crore,” the regulator noted.

Sebi has sought comments from public till December 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 per cent 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 per cent of post issue MCap 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.

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 has increased 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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