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The Securities and Exchange Board of India (SEBI) on Thursday proposed to introduce an enabling framework to address the long-pending issue of lock-in of pledged shares held by persons other than the promoters at the time of the initial public offering (IPO).
The current Issue of Capital and Disclosure Requirements (ICDR) regulations require that the entire pre-issue capital held by persons other than the promoters, except shares held by certain specified categories of shareholders, need to be locked-in for a period of six months from the date of allotment in the IPO. However, the existing system of the depositories does not allow lock-in of certain shares such as those under pledge. This creates challenges for the issuer at the time of IPO.
Sebi, in a consultation paper issued on Thursday, proposed to introduce an enabling framework to address the issue of lock-in of pledged shares held by persons other than the promoters.
This framework will include appropriate enabling provisions in the Issue of Capital and Disclosure Requirements (ICDR) Regulations and incorporation of suitable clauses in the Articles of Association (AoA) of the issuer and mandating the issuer to provide necessary intimations to the concerned lenders / pledgees.
The proposed framework will enhance ease of doing business, while safeguarding the interest of lenders, the regulator said.
Further, the regulator said that an offer document of a public issue is often voluminous and complex, which may not be easy to comprehend, particularly for retail investors. This complexity can make it difficult for the investors to effectively analyse the offer document and gather relevant information for informed decision-making.
The voluminous nature of the offer document may deter retail investors from reviewing such documents, thereby leading to lack of engagement and participation in the IPO process, including providing comments on the disclosures, the regulator said.
To address the issue, Sebi proposed that the disclosures in the offer document summary may be rationalised to make it a focused and concise document. The summary will also be made available separately from the offer document to increase the engagement of the retail investors.
“With the availability of offer document summary, the requirement to prepare an abridged prospectus may be dispensed with. This will rationalise documentation requirements and streamline the public issue process, thereby enhancing the ease of doing business for issuers,” the regulator said in the consultation paper.
