Sebi board tightens rules for utilisation of IPO proceeds

Markets regulator Sebi on Tuesday decided to put a cap on IPO proceeds earmarked for making future acquisition of unspecified targets and will bring under monitoring the funds reserved for general corporate purposes.

The regulator has prescribed certain conditions for selling shares in an Offer-for-Sale (OFS) under IPO by significant shareholders and has extended anchor investors’ lock-in period to 90 days, according to a statement issued by Sebi after its board meeting.

In addition, Sebi has decided to revise allocation methodology for Non-institutional Investors (NIIs).

This comes amid a slew of new-age technology companies filing draft papers with Sebi to raise funds through initial public offerings (IPOs).

Sebi Chairperson Ajay Tyagi asserted that the regulator has no intention to control the prices of IPOs in any manner.

“Price discovery is a function of the market and that is how it works globally as well,” he said at a media briefing after the board meeting.

The board of Sebi cleared a proposal to prescribe a combined limit of up to 35 per cent of the fresh issue size for deployment on such objects of inorganic growth initiatives and general corporate purpose (GCP), where the intended acquisition/strategic investment is unidentified in the objects of the offer.

However, such limits will not apply, if the proposed acquisition or strategic investment object has been identified and suitable specific disclosures are made at the time of filing of the offer document.

It is seen that lately in some of the draft offer documents, new-age technology companies are proposing to raise fresh funds for objects where the object is termed as ‘funding of inorganic growth Initiatives’.

Also, the regulator said that the amount raised for GCP will be brought under monitoring and utilization of the same will be disclosed in the monitoring agency report.

The report will be placed before the audit committee for consideration “on a quarterly basis” instead of “on an annual basis”.

Credit Rating Agencies (CRAs) registered with the Sebi, will be permitted to act as Monitoring Agency instead of Scheduled Commercial Banks and Public Financial Institutions.

“Such monitoring shall continue till 100 per cent instead of 95 per cent utilization of issue proceeds as at present,” Sebi said.

The regulator has prescribed certain conditions for Offer-for-Sale (OFS) to the public in an IPO, where draft papers are filed by an issuer without track record.

Under this, shares offered for sale by selling shareholders, individually or with persons acting in concert, holding more than 20 per cent of pre-issue shareholding of the issuer, should not exceed over 50 per cent of their pre-issue shareholding.

Further, shares offered for sale by such selling stakeholders, holding less than 20 per cent of pre-issue shareholding of the issuer, should not exceed more than 10 per cent of pre-issue shareholding of the issue.

With regard to lock-in period for anchor investors, Sebi said existing lock-in of 30 days will continue for 50 per cent of the portion allocated to anchor investors and for the remaining portion, lock-in of 90 days from the date of allotment will be applicable for all issues opening on or after April 1, 2022.

In case of book-built issues, Sebi said a minimum price band of at least 105 per cent of the floor price will be applicable for all issues opening on or after notification in the official gazette.

For book-built issues opening on or after April 1, 2022, Sebi said one third of the portion available to NIIs will be reserved for applicants with application size of more than Rs 2 lakh and up to Rs 10 lakh.

Further, two third of the portion available to NIIs will be reserved for applicants with application size of more than Rs 10 lakh rupees.

Allotment of securities in case of NII category shall be on ‘draw of lots’, as is currently applicable for the retail individual investors (RIIs) category.

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