February 18, 2021 3:09:02 am
The Securities and Exchange Board of India (Sebi) on Wednesday allowed large companies selling shares to the public for the first time to offer a smaller portion of their stock in initial public offerings (IPOs). It will also give such companies extra time to achieve the minimum public shareholding norm of 25 per cent. This paves the way for the government to divest a stake in Life Insurance Corporation of India (LIC) without flooding the market with the behemoth’s shares.
In its board meeting Wednesday, chaired by Finance Minister Nirmala Sitharaman, the capital markets regulator relaxed the rules for the minimum public offer companies have to make when they hit the market. The rules are encoded in the Securities Contracts (Regulation) Rules, 1957 (SCRR) which will be changed.
Current rules stipulate that any issuer whose post-issue market capitalisation is at least Rs 4,000 crore has to offer at least 10 per cent of its stock to the public. Now, the Sebi has proposed that large issuers — defined as those with post-issue market capitalisation of at least Rs 1 lakh crore — need only make a minimum public offer of Rs 10,000 crore plus 5 per cent of incremental amount of post-issue market capital exceeding Rs 1 lakh crore.
For instance, if a company is expected to have a market capitalisation of Rs 3 lakh crore, it will have to make a minimum offer of Rs 30,000 crore worth of shares in its IPO under current rules.
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Under the new rule, this would be only Rs 20,000 crore (Rs 10,000 crore + 5 per cent of Rs 2 lakh crore).
Further, current rules state that companies going for an IPO have to achieve a minimum public shareholding of at least 25 per cent within three years of the date of listing. Under the new rules, large listers have to achieve at least 10 per cent public shareholding in two years and at least 25 per cent within five years from the date of listing.
These changes will ensure that there is no oversupply of LIC shares when it hits the market. The state-owned insurer’s market capitalisation has been estimated at Rs 10-15 lakh crore and even a 10 per cent minimum public offer means shares worth Rs 1 lakh to Rs 1.5 lakh crore being sold. In comparison, all Indian companies put together raised Rs 1.7 lakh crore from public equity markets in 2020, according to Prime Database data.
At the board meeting, Sitharaman also stressed upon the “need for timely implementation of the Budget announcements relating to capital market,” a Sebi statement said. She also appreciated the measures taken by Sebi during the year, especially those relating to dealing with the Covid-19 situation, it added.
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