Sebi board to clear listing rules on December 28

MUMBAI: A red-hot stock market that encouraged many newage companies to go public and exposed some of the gaps in regulation has prompted the market watchdog to consider new rules, likely to be cleared at its next board meeting on December 28.

At its last board meeting of the year, the Securities and Exchange Board of India (Sebi) will widen IPO price bands, extend anchor investor lock-in periods, and cap the amount a majority investor can sell in a share sale, two people aware of the matter said. The changes are based on a November 16 discussion paper and will aim to curb extreme volatility on listing day or when anchor investors exit, the people cited above said on condition of anonymity.

At an event on Wednesday, Sebi chairman Ajay Tyagi pointed to additional regulatory challenges posed by what he called “companies with non-traditional business models”.

Currently, shareholders can sell some or all of their holding through an offer-for-sale (OFS) in an IPO. But in the case of new-age companies, many of which do not have an identifiable promoter and are making consistent losses, a full exit by large shareholders could erode investor confidence. Sebi will mandate that investors holding over 20% stake can sell a maximum of 50% of their shares through the OFS, said the first of the two people quoted above; the rest can be sold only six months after listing.

Sebi also plans to tighten disclosures about IPO proceeds.

In its November discussion paper, Sebi had observed many new-age companies cite ‘funding of inorganic growth initiatives’ as one reason for the fundraising. “Raising funds for unidentified acquisition leads to some amount of uncertainty/ ambiguity in the IPO objects,” Sebi had said. Now, the firms will be able to use only 35% of the IPO proceeds for such growth initiatives.