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Amid market frenzy, Sebi looks to tighten IPO rules


MUMBAI: Markets regulator Sebi has proposed to tighten the rules for initial public offerings (IPOs), which are currently witnessing hectic activities. Sebi, in a discussion paper, has suggested that at least half of the number of shares allotted to anchor investors should have a lock-in of 90 days or more, up from 30 days. The regulator has proposed that a company aiming to tap public money should be more specific about the fundraise, rather than just stating ‘for future acquisitions’ as one of the objectives. In effect, the regulator seeks to cap the amount of money that companies could raise through IPOs for funding inorganic growth. However, going by precedents, any change in rules may not be effective in three-four months. The objective of the consultation paper is to seek comments from the public. Specifically, the proposed changes to the rules are relating to the objects of an IPO where the aim of the fund-raising is to make future acquisitions/strategic investments without identifying specific targets, conditions for offer for sale (OFS) by significant shareholders, lockin of shares allotted to anchor investors and monitoring of funds raised for general corporate purposes. In the paper, Sebi said that a combined limit of up to 35% of the money raised by a company through an IPO could be deployed towards inorganic growth initiatives and general corporate purpose (GCP), where the target for the acquisition or the strategic investment is unidentified. This limit will not apply in case the target for acquisition or strategic investment is already identified and disclosed in the offer document. The proposed rule change may make it tough for startups and new age technology companies to raise funds. The regulator also proposes that companies should make detailed, quarterly disclosures about usage of funds raised for GCP. At present, companies could set aside up to 25% of the funds raised for GCP but are not monitored as strictly, Sebi said. The regulator seeks that, in IPOs of companies where there are no identifiable promoters, divestment of stake by all types of shareholders holding more than 20% could be capped at 50% of their pre-issue holding. In addition, their shareholding should be locked in for six months after the IPO, it said.


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