Sebi eases IPO dilution rules, extends MPS timeline to help big listings

The regulator also approved an easier onboarding of FPIs

To encourage the listing of large companies, the Securities and Exchange Board of India (Sebi) on Friday approved lowering the minimum dilution requirement for initial public offerings (IPOs) and extended timelines for achieving the minimum public shareholding (MPS). 

The regulator also approved changes to the anchor investor framework, permitting life insurers and pension funds in the reserved category for anchor allocation alongside domestic mutual funds. 

At a time when Sebi is receiving over 100 applications a month for foreign portfolio investor (FPI) registrations, it also announced a single window for onboarding certain FPIs, aimed at reducing compliance burden. Lower minimum public offers (MPOs) or dilutions will further ease requirements. Sebi said large stake dilutions via IPOs may pose challenges, as the market may not be able to absorb such a large supply of shares, which could discourage issuers from pursuing listings in India. 

Companies with a post-issue market capitalisation (mcap) of above ₹5 trillion will need to offer shares worth ₹15,000 crore and at least 1 per cent of mcap, with a minimum dilution of 2.5 per cent prescribed.

 

For companies with mcap of between ₹1 trillion and ₹5 trillion, the MPO would be ₹6,250 crore and an additional 2.75 per cent of the post-issue market capitalisation. 

If the public shareholding of such companies is less than 15 per cent at the time of listing, they will have five years to reach 15 per cent and a total of 10 years for the mandated 25 per cent MPS. 

Norms for public issues below ₹50,000 crore will remain unchanged. 

Sebi Chairman Tuhin Kanta Pandey said the changes would further boost the primary market and bring in supply of fresh papers through large issuers. 

These changes will require approval from the Ministry of Finance, as they involve amendments to the Securities Contracts (Regulation) Rules (SCRR). 

For anchor investors, the overall reservation has been increased from one-third to 40 per cent. Of this, one-third will continue to be reserved for domestic mutual funds, while the remainder will be available to life insurers and pension funds. 

Sebi also approved increasing the number of permissible anchor investor allottees for allocations above ₹250 crore. 

On any possible new curbs in the derivatives segment, the Sebi chairman dismissed recent reports as “unnecessary speculation,” adding that the regulator would take time to consult, as the issues involved are complex. 

He added that a report by the committee formed to review Sebi’s conflict of interest code is expected by the end of this month.

  As part of continuing reforms for FPIs, Sebi announced a single-window framework called SWAGAT-FI for easier registration of low-risk FPIs, such as sovereign wealth funds and government-related investors. Regulated public funds with diversified investors, such as mutual funds, insurance companies, and pension funds, will also be eligible. 

The platform will reduce documentation requirements and introduce a one-time KYC fee of $2,500 for a 10-year block, instead of the standard three-year cycle. These FPIs will also be exempt from the 50 per cent aggregate contribution cap applicable to NRIs and overseas citizens of India. Sebi said the relaxations will cover more than 70 per cent of FPIs. 

The regulator also allowed retail schemes in GIFT-IFSC with a resident Indian sponsor or manager to register as FPIs.

A dedicated portal, India Market Access, has also been launched for FPIs to access consolidated information. 

Additionally, Sebi has approved re-classification of real estate investment trusts (Reits) as ‘equity’ for mutual funds, making them eligible for inclusion in equity indices. However, the same has not been extended for Infrastructure Investment Trusts (InvITs), which will be categorised as ‘hybrid’. 

Sebi will also expand the scope of ‘strategic investors’ in REITs and InvITs to include provident funds, public financial institutions, AIFs, and state industrial development corporations.

 

In the mutual fund space, the regulator capped the maximum exit load at 3 per cent, down from 5 per cent. Incentives will also be reintroduced for distributors for new inflows from beyond the top 30 cities.

 

Sebi also approved introduction of scale-based thresholds based on turnover of listed companies to determine material related party transactions. This will reduce the number of transactions requiring shareholder approval.

 

Other key decisions include introducing a separate category of AIF schemes exclusively for accredited investors, operational relaxations for large-value funds for accredited investors, and relaxations for investment advisers and research analysts.

 

The regulator has also decided to expand its nationwide presence with regional offices in state capitals. 

Slew of reforms

 

• New scale-based MPOs
• Extension in timelines to comply with 25% minimum public shareholding
• 40% reservation in anchor portion for domestic mutual funds, life insurers, pension funds
• Single-window for smoother registration of FPIs, platform for regulatory information
• Reduced maximum exit load from 5% to 3% in mutual funds