Sebi to tweak IPO norms to boost retail participation

Announcements likely at board meeting later this month

The Securities and Exchange Board of India (Sebi) is likely to announce a series of changes to the initial public offering (IPO) framework, to help issuers and boost investor participation. Among the changes planned are removal of the Rs 4,000-crore minimum size criterion and an enhanced quota for the so-called anchor investors.

The tweaks to the IPO framework are being planned at a time when a slew of companies are gearing up to hit the market for raising capital. The announcements, sources indicated, were expected to be made at Sebi’s next board meeting on June 16.

Under the current regulation, a company has to divest at least 25 per cent of its stake if its valuation is below Rs 4,000 crore. But large companies — those with market capitalisation of more than Rs 4,000 crore — need to divest only 10 per cent in public issues. Sebi Chairman U K Sinha on Wednesday said the regulator was reconsidering the rule because it was proving an incentive for companies to artificially beef up their valuations so that they were allowed to sell fewer shares in IPOs.

“A company with a valuation of, say Rs 3,500 crore, ends up issuing more shares. So, companies present before Sebi that their value is Rs 4,000 crore or more. Such discrimination is creating an anomaly and we are trying to resolve that,” said Sinha, on the sidelines of the CII Capital Markets Summit here.

Investment bankers said the norm was particularly hurting firms with valuations under Rs 4,000 crore. Bankers cited the example of local search engine Just Dial, which came out with a Rs 980-crore IPO in May last year. The company wanted to sell only 10 per cent stake but was forced to sell 25 per cent because its valuation was Rs 200 crore short of the Rs 4,000-crore mark.

Sebi is also planning to raise anchor investors’ quota in public issues to boost institutional investors’ participation and provide retail ones more comfort.

Anchor investors are those institutions that invest in IPOs days before their opening date and have their investments locked in for a period of 30 days from the date of allotment. Sebi had introduced the concept of anchor investors in 2009 to encourage investors to commit capital in IPOs even before their opening, so that positive signals could be sent out. At present, anchor investors can be allotted up to 15 per cent of the shares offered in an issue.

Without specifying the new cap, Sinha said the rise in quota for anchor investors would be carved out from the institutional investors’ share, to ensure the retail investors’ quota wasn’t affected. In an IPO, 50 per cent shares are meant for institutional investors, while the quota for retail investors is 35 per cent. The remaining 15 per cent shares are for high-networth individuals.