Sebi proposes Monitoring Agency to oversee usage of IPO funds

To check possible misuse of money raised through public offers, Sebi today proposed to make it mandatory for all companies to appoint a 'Monitoring Agency' to oversee orderly utilisation of such funds and to make public their observations on a quarterly basis.
Under the new framework, the Monitoring Agency Report would also need to list out all deviations from the fund utilisation objectives stated by the company at the time of public offer, as also the comments from their management and auditors on such matters.
The Monitoring Agency, which can be a public financial institution or a scheduled commercial bank, would also grade the deviations observed in the utilisation of public offer proceeds, which their reports need to be made public through stock exchanges within 45 days of the end of every quarter.

Inviting public comments on these new norms by March 25, Sebi said necessary amendments would be made in the existing regulatory framework to bring about proposed changes.
Currently, companies are required to appoint such Monitoring Agencies only for IPOs and other public issues worth Rs 500 crore or more. Also, these agencies are presently required to submit their reports on a half-yearly basis, while such reports are not made public under current regulations.
Proposing new norms, Sebi said that these requirements would now be made compulsory for all companies, irrespective of the issue size, while the companies would also have to made the Monitoring Agency Reports public. The frequency of such reports will also be increased from half-year to quarterly.

Sebi said its regulations are aimed to ensures that the amount to be utilised towards each object of the issue is specifically earmarked and disclosed in the offer document.

"Mandating such detailed disclosures helps in monitoring of utilisation of the funds raised through public issues as well as enables the investors to take informed decision," Sebi said.
Keeping similar objective in mind, the regulator recently amended its regulations and put a limit on the amount that can be earmarked for 'General Corporate Purpose' to 25 per cent of the total issue size.
Sebi has come across several case where the companies have diverted funds raised through public offers for motives beyond the stated objectives, while money has also been used for personal gains of the promoters and others in some cases.

The regulator has also proposed a new format for the Monitoring Agency Report, wherein details of each deviation would be required to be mentioned alongwith comments of the agency, audit committee and the management of the company.
Also, a board committee would need to oversee the monitoring of utilisation of issue proceeds by the company.