The Securities and Exchange Board of India (SEBI) approved amendments to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. 25,26 The 2018 Regulations provide the framework for public issue of shares. These amendments have been approved based on the recommendations of the Primary Market Advisory Committee.
Key changes include:
▪ Funds for inorganic growth: Under current regulations, companies issuing an initial public offer (IPO) may earmark up to 25% of the fresh issue size for general corporate purpose (GCP). GCP includes identified purposes for which no specific amount is allocated. In a consultation paper issued in November 2021, SEBI had observed that certain companies are proposing to raise fresh funds through IPO for inorganic growth initiatives.27 Unlike the GCP, the target of these initiatives are not identified by the issuer company.
▪ The amendments seek to change this to provide that issuer companies cannot keep aside more than 35% of the amount being raised for GCP and future inorganic growth. This would apply to proposals for inorganic growth without an identified acquisition or investment target. This limit will not apply if the proposed acquisition or strategic investment object has been identified.
▪ Share sale in IPO: The amendments add certain conditions on sale of pre-IPO shareholding. In case of IPO by issuers without a track record, shares offered for sale by shareholders, individually or with persons acting in concert, must not exceed 50% of their pre-issue shareholding. This will apply if such persons held more than 20% of the pre-issue shareholding. If the pre-issue shareholding is less than 20%, then the shares offered for sale must not exceed 10% of such shareholding. Issuers without a track record are those who do not meet certain criteria fixed by SEBI such as net tangible assets of at least three crore rupees in preceding three years and average operating profit of at least Rs 15 crore during preceding three years.
▪ Lock-in for anchor investors: Currently, shares allocated to anchor investors are locked in for 30 days from the allotment date. Anchor investors commit money upfront to inspire confidence in the public issue. As per the approved amendments, 50% of the portion allocated to anchor investors will be locked in for 90 days from the date of allotment. This will apply to all issues from April 1, 2022.
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