Sebi proposes to tighten regulations on issuance of bonus shares

The capital market regulator plans to tighten regulations on the issuance of bonus shares, making only the dematerlialised ones eligible. Further, it has also proposed to streamline rules for under-writing of nitial public offerings (IPO) and follow-on public offers (FPO).

The Securities and Exchange Board of India (Sebi), on Wednesday, floated a consultation paper seeking comments on changes in Issue of Capital and Disclosure Requirements Regulations (ICDR).

“A listed issuer shall be eligible to announce its bonus issue only if it has received in-principal approval from the stock exchanges for listing of all the pre-bonus securities issued by the listed entity excluding Employee Stock  options (ESOPs) and convertibles shares/ warrants,” said Sebi.

The market watchdog noted that the proposed change will help mitigate the mismatch between the listed capital and issued capital of the issuer. For instance, for the total 122 bonus issuances in 2022, 1.28 per cent allotments were done in physical mode.

Sebi noted that as long as there is a mismatch, a company may not be considered eligible to announce bonus issue as it is a price sensitive information.

Sebi has further proposed to allow Pension Funds of entities which are associate of the Lead Managers, to participate as an Anchor Investor in a public issue. At present, only those pension funds which were not an associate of the lead manager were allowed in the book-building process.

Furthermore, Sebi has recommended that the companies will have to enter into underwriting agreement for under-subscription prior to the filing of the red herring prospectus. The agreement will have to indicate the maximum number of securities which they will subscribe to, at the predetermined price which will be not less than the issue price.