Market regulator to cut minimum offer size to Rs 400 crore

To increase anchor investor quota for IPOs, rejig pricing method for QIPs

The Securities and Exchange Board of India (Sebi) is considering a proposal to introduce a threshold of Rs 400 crore in the regulations governing the minimum offer size of initial public offerings (IPOs).  This will help mid-sized companies, specially ones with private equity (PE) investments, constrained by the present requirements.

This will be part of proposals the board will consider during its meeting later this month to rejuvenate the primary market, which has remained sleepy during the first half of the year.  The Association of Investment Bankers of India (AIBI) and the Primary Market Advisory Committee have been consulted on these moves.

It has been proposed the minimum offer for smaller companies would be 25 per cent of the total market cap or Rs 400 crore, whichever is lower. Wherever the dilution is below 25 per cent, the remaining dilution shall be achieved in three years, it is proposed.

Sebi may seek changes to the Securities Contract Regulation (Rules) to implement this.

At present, an issuer has to offer at least 25 per cent of the post-issue equity capital, if the total market capitalisation is less than Rs 4,000 crore. Bigger companies are allowed to dilute 10 per cent with a condition these achieve 25 per cent float within three years.  

Sebi is considering a proposal from AIBI to double the anchor investor bucket to 60 per cent of the quota available to qualified institutional bidders (QIBs) in a public issue. This will help in building the issue book early and provide opportunity to the issuer to reward early investors.

The regulator wants the pricing of shares for preferential issues and qualified institutional placement (QIP) to be based on the volume weighted average price instead of closing prices.

Market participants say closing prices are not a good benchmark for pricing.

The regulator also proposes changes to the offer for sale (OFS) of shares through the stock exchange mechanism to enable retail participation. Accordingly, 10 per cent of the issue size on such offers may be reserved for retail investors. Sebi also plans to extend the OFS mechanism to non-promoter shareholders and the pool of eligible companies may be increased to the top 200 by market capitalisation. This will enable large institutional shareholders to use the route to offload their shares in an effective manner.