Stricter IPO Norms

Stricter IPO Norms

Subject – Economy

Context – Stricter IPO norms: Cap on proceeds for future acquisitions, corporate use

Concept –

• The Securities and Exchange Board of India (SEBI) tightened the guidelines for usage of proceeds from the initial public offering (IPO) by companies.
• The regulator, in a board meeting, has prescribed certain conditions for selling shares in an Offer-for-Sale (OFS) under IPO by significant shareholders and has extended anchor investorslock-in period to 90 days for half of the quota for such investors.
• The regulator has 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.
• In addition, Sebi has decided to revise allocation methodology for non-institutional investors (NIIs).
• 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 (takeovers) 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.

Why SEBI wants longer lock in period?

Sebi has decided that a longer lock-in period is needed to protect the interest of other investors. It suggested that at least 50 per cent of the anchor book should have a lock-in of 90 days.

A lock-in period of 30 days allows anchor investors to sell their holdings just after 30 days, leading to substantial fluctuations in the stock price. According to experts, this significantly hurts the interest of smaller retail investors.