Stricter IPO norms: Cap on proceeds for future acquisitions, corporate use

The regulator has decided to put a cap on IPO proceeds earmarked for making future acquisition of unspecified targets and will bring under monitoring the funds reserved for general corporate purposes. In addition, Sebi has decided to revise allocation methodology for non-institutional investors (NIIs).

The Sebi move follows a slew of new-age technology companies filing draft papers with Sebi to raise funds through IPOs. “Price discovery is a function of the market and that is how it works globally as well,” Sebi Chairman Ajay Tyagi said at a media briefing after the board meeting. The board of Sebi cleared a proposal to prescribe a combined limit of up to 35 per cent of the fresh issue size for deployment on such objects of inorganic growth initiatives (takeovers) and general corporate purpose (GCP), where the intended acquisition/strategic investment is unidentified in the objects of the offer. However, such limits will not apply, if the proposed acquisition or strategic investment object has been identified and suitable specific disclosures are made at the time of filing of the offer document.

In some of the draft offer documents, new-age technology companies have proposed to raise fresh funds for objects where the object is termed as ‘funding of inorganic growth initiatives’.

Sebi said the amount raised for GCP will be brought under monitoring and utilisation of the same will be disclosed in the monitoring agency report. The report will be placed before the audit committee for consideration “on a quarterly basis” instead of “on an annual basis”.

The regulator has prescribed certain conditions for OFS to the public in an IPO, where draft papers are filed by an issuer without track record. Under this, shares offered for sale by selling shareholders, individually or with persons acting in concert, holding more than 20 per cent of pre-issue shareholding of the issuer, should not exceed over 50 per cent of their pre-issue shareholding. Further, shares offered for sale by such selling stakeholders, holding less than 20 per cent of pre-issue shareholding of the issuer, should not exceed more than 10 per cent of pre-issue shareholding of the issue. With regard to lock-in period for anchor investors, Sebi said existing lock-in of 30 days will continue for 50 per cent of the portion allocated to anchor investors and for the remaining portion, lock-in of 90 days from the date of allotment will be applicable for all issues opening on or after April 1, 2022.

In the case of book-built issues, Sebi said a minimum price band of at least 105 per cent of the floor price will be applicable for all issues opening on or after notification in the official gazette. For book-built issues opening on or after April 1, 2022, Sebi said one-third of the portion available to NIIs will be reserved for applicants with application size of more than Rs 2 lakh and up to Rs 10 lakh.

Meanwhile, to further safeguard the interest of mutual fund investors, Sebi on Tuesday decided to mandate trustees of mutual funds to obtain the consent of unitholders when the majority of trustees decide to wind up a scheme.