Stricter monitoring of IPO proceeds by small firms: Sebi

To check any misuse of funds raised through public offers, Sebi today made it mandatory for companies raising over Rs 100 crore via share sale to appoint a monitoring agency to keep tab on use of the capital.
Under the present norms, such a monitoring agency -- which could be a bank or a public financial institution -- is required to be appointed only by the companies raising more than Rs 500 crore through public offers.
The regulator's board approved a proposal to further strengthen the monitoring of issue proceeds raised in initial public offer (IPO), follow-on public offer (FPO) as well as from existing investors through rights issue.

Now, it has made mandatory appointment of monitoring agency where the issue size (excluding offer for sale component) is more than Rs 100 crore, Sebi said.
"When you set up a monitoring committee there are certain costs of compliance. It (threshold) has been reduced because it has been observed that it is the smaller issues which have been misused. The threshold is to ensure compliance cost are okay," Sebi chairman Ajay Tyagi told reporters here after the board meeting.
The move followed complaints that some small companies could have diverted their IPO funds for purposes other than those mentioned in the offer document while garnering money from the investors.

Sources said that such complaints are related to IPOs worth less than Rs 500 crore as the rules are already stricter for the companies going public with bigger share sales.

Sebi said that the monitoring agency will have to submit its report to the issuer every quarter from the current requirement of half yearly report.
For wider dissemination of information, the regulator has made it mandatory to disclose the agency's report on the company's website in addition to submitting it to stock exchange.
Besides, Sebi has introduced a "maximum timeline of 45 days for submission of the report from the end of the quarter in conjunction with the submission of the quarterly results".

Further, the issuer will have to disclose about the comments of the board of directors as well as the management on findings of the agency.
On monitoring agency, Tyagi said that the committee will give report which would be available on the exchanges and other than that "audit committee will also monitor it".
"So this is a movement in a direction to ensure people follow rules. If people don't follow than the matters would be adjudicated by Sebi," he added.
The Securities and Exchange Board of India (Sebi) had floated a discussion paper way back in February 2014 to make it mandatory for all companies to appoint a monitoring agency post-IPO to monitor use of funds and disclose the same, irrespective of the size of the share sale.

However, most of the inputs that Sebi received at that time were in favour of retaining Rs 500 crore limit to lessen the compliance burden on small companies and to give a boost to the IPO market.