Road to listing may get easier: Sebi expert panel for relaxing IPO norms

India Inc’s road to going public could get easier as a Securities and Exchange Board of India (Sebi) expert committee has suggested giving companies more flexibility to alter the issue size post the submission of an offer document.

The panel also recommended more avenues for maintaining the mandatory 20 per cent minimum promoters’ contribution post-listing.

Further, allowing companies to extend the Initial Public Offering (IPO) period just by one day as against the compulsory three days at present in case of force majeure events, such as a banking strike.

The expert committee, chaired by former Sebi whole-time member S K Mohanty and comprising members from the Ministry of Finance, Ministry of Corporate Affairs, stock exchanges, legal experts, has also suggested changes both on the listing as well as the disclosure front. The panel was set up following the previous Union Budget announcement directing financial regulators to work on simplifying and easing the compliance burden.

At present, companies need to maintain at least 20 per cent of their post-offer equity share capital as MPC. The rule is to ensure that promoters maintain some skin in 

the game after raising funds from the public.  

Going ahead, shareholding of private equity (PE) and other non-individual shareholders can qualify as minimum promoters’ contribution, subject to certain conditions around holding period and quantum. They can do this without being identified as a promoter.

Additionally, compulsory convertible securities, including depository receipts held for at least one year, could also be included in the minimum promoters’ contribution.

The committee has recommended that the increase or decrease in the size of the offer for sale (OFS) should be based either on the issue size or the number of shares, and not both criteria. 

At present, companies have to refile their IPO document in case the fresh issue component is altered too much. The new proposal will give companies more leeway and help them go to the market faster, said experts.

On the disclosure front, the panel has suggested considering the average market capitalisation (mcap) of six months (July-December) to determine the rankings — which are followed to comply with various regulations, such as onboarding women directors, disclosing dividend disclosure policies, and conducting timely annual general meetings. Typically, most new frameworks become first applicable to the top 100 or 250 companies.

Companies may also be provided a window of three months for compliance with provisions related to mcap.

The committee has also recommended increasing the time limit of three months to fill the vacancy of key positions to six months. This would be applicable for those key managerial positions that require obtaining regulatory or government approvals. Various appointments at public sector enterprises and even banks and non-banking financial companies require such approvals.

The Sebi panel has also proposed to relax the timeline for prior intimation of board meetings and the gap required to be maintained for conducting meetings of the risk management committee.

ON THE CARDS
 

> India Inc may get more flexibility to alter issue size, bring in promoter contribution

> Inclusion of non-individual shareholders in the 20% promoters’ contribution, without being identified as a promoter

> Addition of compulsory convertible securities and depository receipts for the same

> More flexibility to change IPO size after filing of DRHP

> Change in calculation of mcap ranking to a six-month average instead of March 31 cut-off