Sebi to tighten rules amid share sale rush
India’s markets regulator proposed to tighten rules on how companies can spend cash raised through initial public offerings and how quickly big investors can exit, a move aimed at protecting smaller shareholders seeking to buy into a flurry of listings by newage technology firms that is propelling the nation’s equity markets to record highs.
The Securities and Exchange Board of India proposed to limit a maximum 35% of proceeds for acquisitions and unspecified strategic investments, according to a consultation paper published late Tuesday. It also proposed to lock in for longer so-called anchor investors to prevent a quick post-listing exit.
The proposals from the capital markets watchdog -- comments for which are sought by November 30—come as India is set for a record year for IPOs and follow the central bank’s decision to impose limits on borrowers seeking to buy shares of a new listing. Paytm is due to debut this week following a $2.4 billion offering that was the country’s biggest, while others like beauty startup Nykaa almost doubled on its first trading day. The decisions will increase transparency and are “a step in the right direction,” said Sonam Chandwani, managing partner with KS Legal & Associates. She added however that they “will undoubtedly weigh on prospective startups’ IPOs.”
These are some of the changes proposed by the regulator: The proposals from Sebi follow the Reserve Bank of India’s decision last month to cap lending for investments in new listings at 1 crore rupees per borrower, effective April 1, 2022.
In June this year, the markets regulator had made it easier for very large companies to launch initial public offers. Amendments were notified to the securities contract regulations, effective June 18, which considerably relaxed the minimum public shareholding norms for large issue sizes.
These progressive amendments recognised that Indian companies are now bigger than they previously were and hence this is a dynamic amendment by the Sebi, Yash Ashar, partner at Cyril Amarchand Mangaldas, had said. The regulatory framework prescribes a minimum public offering to be made by a company according to its postissue capital upon listing (calculated at offer). The amendment reduces that burden. Now, companies which upon listing will have a market value greater than ₹1 lakh crore will have to make an offer of minimum of ₹5,000 crore and 5% of shares.