New Delhi: In a new set of proposed rules, markets regulator SEBI is looking to amend guidelines on how companies can spend cash raised through initial public offering and with an aim to provide protection to small shareholders aiming at the upcoming issues. How quickly can big investors exit from
The Securities and Exchange Board of India has sought to limit earnings to a maximum of 35 percent for acquisitions and unspecified strategic investments, according to a consultation paper published on Tuesday, news agency Bloomberg reported.
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It is also considering longer lock-in for so called anchor investors to prevent quick withdrawals post listing. Suggestions have been sought on the proposal by 30 November.
The proposed changes come after India witnessed a record number of IPOs this year, following which the central bank has decided to impose limits on borrowers willing to buy shares of the new listing.
Paytm, counted as one of the biggest IPOs in history, will be listed on the stock market this week and other issues like beauty startup Nykaa almost doubled on its first trading day.
What are the proposed rules?
* According to Bloomberg, 35 percent of IPO issues can be used for inorganic growth initiatives and general corporate purposes.
The regulator said technology companies often need to raise funds to expand into new markets, acquire clients or other firms, which are often widely lumped under the category of ‘financing of inorganic growth’ that investors create uncertainty, the regulator said.
One of the other rules mentions that IPOs of firms without identifiable promoters, share sale by significant shareholders will be limited to 50 per cent of their pre-issue holdings. Also, note that investors holding more than 20 per cent stake will be considered as ‘significant shareholders’.
* Such shareholders will face a lock-in period of six months after the share sale. SEBI said that this may include venture capital funds, alternative investment funds.
At least 50% of the anchor investors should be those who are willing to stay in the investment for at least 90 days. This compares with currently 30 days. The SEBI proposals follow the Reserve Bank of India’s decision to invest in new listings at Rs 10 million per borrower, with effect from April 1, 2022.
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