Sebi Board to Clear Proposals on IPO Reforms Tomorrow Lock-in Period

The board of the Securities and Exchange Board (Sebi) is set to clear a set of proposals aimed at primary market reforms when it meets on December 28, said people with knowledge of the matter. These include constraints on the use of funds raised in initial public offerings (IPO) for unidentified acquisitions by new-age technology companies, an increase in the lock-in period for anchor investors in IPOs and tighter rules on monitoring IPO proceeds.

Sebi is of the view that raising funds for unidentified acquisitions leads to ambiguity in IPO objectives. These uncertainties increase further in case a significant portion of the fresh issue is earmarked for such purposes.

Sebi had issued consultation papers in November on these subjects, seeking responses from the public. Most offer documents filed with Sebi have cited acquisition plans without naming likely targets.

Corporate lawyers said the move could curb the flexibility of companies on utilizing their funds.

“Listing is a tedious and time-consuming process that involves getting consent of various third parties, which in turn requires companies to manage confidentiality and other concerns,” said Gaurav Mistry, associate partner, DSK Legal. Companies could be held liable for not acting on stated M&A plans.

“There is a possibility that such a requirement could potentially blow back if, post listing, the identified deals or investment opportunities fall through, and such a situation may also, possibly, expose the listed company to regulatory action (for misrepresentation, inducement, unfair practice, etc.) and litigation from various stake-holders,” he said.

Sebi had proposed a combined limit of up to 35% of the fresh issue for deployment in inorganic growth initiatives and general corporate purposes (GCPs), when the intended acquisition target is not identified in the objectives of offer. However, this limit won’t apply if the offer document lists specific acquisition plans.

Zomato, Nykaa and Paytm are among startups that have listed on Indian bourses in 2021.

More are awaiting the regulator’s approval to launch IPOs.

Out of 23 IPOs with an issue size of more than Rs. 1,000 crores so far in FY22, five were by companies with non-traditional business models.

The regulator’s bord will also discuss increasing the lock-in for anchor investors in IPOs to 90 days from the current 30 days. The proposed move is aimed at providing more confidence to other investors. Currently, companies can allocate 69% of the portion meant for qualified institutional buyers (QIBs) to anchor investors on a discretionary basis.

The allotment to anchor investors is made a day prior to the issue opening date.

Sebi may also discuss changes in rules on monitoring usage of issue proceeds under GCP.

The regulator had proposed that companies may have disclose utilization of the GCP amount in the quarterly monitoring agency report. Currently, companies are not required to disclose any specific object regarding deployment of the GCP amount and its usage is not covered in the monitoring agency report.


The Sebi board will also discuss price bands and the allocating of shares to rich investors in IPOs. Sebi had proposed to introduce a minimum price band in all public issues, with the upper one at least 5% more than the floor price.

Statistical data show that the price band has been more a matter of perception in recent IPOs, than a reflection of actual value, said Mehul Savla, partner, Ripple Wave Equity Advisors. “Globally, the pricing range in IPOs on the NYSE, Nasdaq is wider and the process is more dynamic and flexible with several instances of the final pricing falling within or even outside the price range depending on demand,” he said. S-ET

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