Sebi proposes lower dilution for mega IPOs, extended MPS timelines
Mumbai, Aug 18,
Sebi has proposed easing IPO rules for companies with over ₹5-trn market cap by lowering dilution norms and extending timelines to meet public shareholding requirements
The Securities and Exchange Board of India (Sebi) on Monday proposed lowering the minimum dilution requirement for mega initial public offerings (IPOs), a move expected to benefit large listings such as Reliance Jio Infocomm and the National Stock Exchange (NSE).
Under the proposed norms, companies with a market capitalisation exceeding ₹5 trillion would be allowed to significantly reduce their minimum public offer (MPO). For instance, under the current framework, a company with a market valuation of ₹15 trillion must come out with an MPO worth ₹80,000 crore. This has been proposed to be reduced to ₹ 37,500 crore.
Such large companies would also be given up to 10 years to achieve the 25 per cent minimum public shareholding (MPS) requirement, compared with five years at present.
These proposals have been recommended to the Ministry of Finance for amendments to the Securities Contracts (Regulation) Rules (SCRR).
The larger the company, the greater the benefit in terms of reduced MPO.
Currently, companies with a post-issue market capitalisation above ₹1 trillion must dilute at least 5 per cent of their equity. They also have a two-year window to increase public shareholding to at least 10 per cent, and five years to reach 25 per cent.
Under the new proposal, companies with a post-issue market cap above ₹5 trillion would need to offer shares worth ₹15,000 crore, plus at least 1 per cent of market capitalisation. For companies with market caps between ₹1 trillion and ₹5 trillion, the minimum public offer would be ₹6,250 crore, plus 2.75 per cent of market value.
Firms with market caps between ₹50,000 crore and ₹1 trillion would have a reduced minimum offer of ₹1,000 crore and 8 per cent dilution of market capitalisation.
Sebi cited examples such as LIC and Hyundai Motor India to show that large offerings can be difficult for markets to absorb, potentially deterring big issuers from listing domestically. It also noted that expectations of further dilution to meet MPS norms can negatively affect share prices, even when company fundamentals remain strong.
“Executing such large public issues may be challenging, especially in volatile market conditions, as investor demand is influenced by several factors including market sentiment,” Sebi observed.
The regulator also proposed extending timelines for meeting MPS requirements. IPOs with market caps above ₹1 trillion would have five years to achieve 15 per cent MPS and 10 years to reach 25 per cent from the date of listing. If they already meet 15 per cent MPS, the deadline to reach 25 per cent would be five years.
Arka Mookerjee, partner, JSA Advocates & Solicitors, said Sebi’s proposal will reduce requirement to seek ad hoc or one-time Sebi relaxations, and further ease the pressure on secondary capital markets, which only issuers with genuine capital requirements will tap into for a fund raise.
In a notable shift, Sebi has retracted its earlier proposal to reduce the retail quota in IPO allocations, deciding instead to retain the existing 35 per cent quota. It said challenges previously highlighted regarding the retail quota would be addressed by allowing reduced minimum public offers for large issuers.
[The Business Standard]
