The year 2021 witnessed an IPO frenzy in the Indian stock market. This was the year when 63 companies opened up their doors for the public and raised ?1.19 trillion in the IPO. Some of them have been blockbusters in the Indian market while some have not performed as per the expectations. Amid this turmoil, it is the job of SEBI to secure the interest of retail investors. And now it is bringing in some major changes.
SEBI overhauls the way companies handle IPO
The latest changes made by the Securities Exchange Board of India (Sebi), address some of the regulatory gaps that have emerged after the regulator relaxed rules to allow startups, without a track record of profitability and low founder stakes, to list on the main board of Indian exchanges.
As per the new rules, large shareholders, with more than 20% stakes in the company, are barred from selling their entire holdings on listing day. However, they are allowed to sell 50% of their shares on the listing.
At present, large shareholders can sell their entire holding through the offer-for-sale (OFS) route. But with new-age companies having neither a profit track record nor an identifiable promoter, a complete exit by prominent shareholders may lead to a crisis of confidence among retail investors, Sebi reasoned for these changes.
SEBI tightens norms for spending publically raised funds
Companies now will be allowed to use only 25% of the IPO proceeds for unidentified acquisitions. For others, the spending on acquisitions will be capped at 35%. SEBI has directed rating agencies to tightly monitor how the funds are used.
SEBI has also increased the lock-in period for anchor investors from 30 days to 90 days to prevent share-price volatility and losses for retail investors. This will apply to only 50% of the allocation to anchor investors. This move will take effect in April.
Adding to that publicly traded companies will now have to adhere to their articles of association (AoA) and SEBI’s pricing norms while valuing a deal. Along with that, a valuation report would need to be furnished if a company allots more than 5% shares to any entity.
Sebi also made changes in the price band norms. The difference between the floor price and the upper price band shall be at least 5%. SEBI now has bifurcated the quota by mandating that one-third of the retail investor quota will be reserved for investors with an application size of more than ?2 lakh and less than ?10 lakh. The rest will be offered to investors with an application size of more than ?10 lakh.
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