The Securities Exchange Board of India (Sebi) has floated a consultation paper seeking the tightening of rules on how companies plan to spend money they raise through initial public offerings (IPOs), as India is witnessing record public-listing activity in 2021.
The market regulator has recommended to cap share sales by ‘significant’ shareholders having more than 20% stake at 50% of their pre-issue holding for firms with no identifiable promoters. Sebi has also proposed to give 50% of the anchor book to investors who agree to a lock-in period of at least 90 days. Sebi has also proposed a combined limit of 35% of IPO proceeds for acquisitions and unspecified strategic investments.
The market regulator also recommended tighter monitoring of IPO proceeds used for ‘general corporate purposes.’ Sebi proposed that companies may need to use the IPO proceeds for general corporate purposes in their quarterly monitoring agency report. As of today, companies are not mandated to specify how they will use this money.
However, Sebi said that such limits will not be applicable if the company identifies and makes suitable specific disclosures at the time of filing the offer document. The market regulator is of the opinion that new-generation technology companies often raise funds for customer acquisition, to expand into newer markets, and for acquiring firms that are pooled under the broad category of ‘funding of inorganic growth,’ which creates uncertainty for investors.
The proposed recommendations by Sebi comes at time when a slew of new-generation technology companies have gone for public listing. Companies in 2021 have raised more than Rs 1 lakh crore through IPOs. New-age tech companies like Zomato, FSN E-Commerce which operates Nykaa, PB Fintech which operates online insurance marketplace Policy Bazaar, among others, have witnessed blockbuster IPOs. This week, One97 Communications, parent of fintech firm Paytm, will be listed in what will be India’s biggest-ever IPO.
The proposed recommendations are a step towards protecting the rights of retail investors, who have been investing heavily in these new-age firms, with even the younger generation joining the frenzy through online applications like Zerodha and Upstox.
Since the pandemic started last year, as many as 14.2 million new demat accounts were opened in 2020-21 (FY21), according to the data from the National Securities Depository, and Central Depository Services, a near three-fold increase from 2019-20 (FY20)’s 4.9 million.
The markets regulator has sought comments by 30 November.