Sebi eases IPO norms, tightens definition of ‘promoter group’

Mumbai: The capital markets regulator, Securities and Exchange Board of India (Sebi) on Thursday eased disclosure norms for initial public offerings (IPOs) and tightened the definition of ‘promoter group’ to prevent fraudulent transactions. IPO issuers will now be allowed to announce the price bands two days before the issue opens for subscription instead of the previous five days, the new Sebi guidelines said. The new IPO norms include ‘immediate relatives’ within the definition of promoter and promoter groups.

Sebi also said that financial disclosures will need to be made for three years, compared with the earlier five years. Besides, institutional investors, such as alternative investment funds, will be able to contribute up to 10% of what the promoter is required to offload in an IPO.

The easier disclosure requirements are aimed at encouraging genuine companies to raise funds through the capital markets route, while the stricter definition of promoter group will ensure that IPOs are not misused to evade taxes.

“The move to permit issuers to announce the IPO price band two days before the issue opening date will enable them to budget for volatility in both the domestic and global markets,” said Yogesh Chande, partner, Shardul Amarchand Mangaldas. “The amendments in ICDR (Issue of Capital and Disclosure Requirements) Regulations relating to rights issue and public issue will simplify the disclosures in the offer documents, which was otherwise a tedious and a cumbersome process. These changes will ease the manner and the time generally taken to raise funds from the public.”

The changes were based on the recommendations made by a panel led by capital markets expert Prithvi Haldea. He had submitted the report to Sebi on 4 May.

Under the new regulations, the buyback period of a company’s stock has been redefined as the time between the board’s resolution to that effect and the date on which the payment will be made to shareholders. Sebi also said that at least 15% of the securities a company proposed to buy back should be reserved for small shareholders, while the maximum limit was capped at 25% of the company’s paid-up capital. Sebi also allowed companies to buy back as much as 10% of shares outstanding without shareholders’ resolution.

“It was not an exercise to fundamentally change the primary market regulations. It was taken up because the ICDR regulations had become unyielding and obsolete, and was still referring to the Companies Act, which were redundant and the language was tedious,” said Haldea. “The basic task for me was to rewrite the language in simple English for investors. While doing that, we found that there were many regulatory norms that were required to take care of the market practices, IPO size and international practices.”

The markets watchdog has updated the references to the new Companies Act that came into force in April 2014.

Changes to governance norms for exchanges and depositories were based on the recommendations of the R. Gandhi panel, which had submitted its report in the last week of March. According to new norms, the tenure of the managing director and the CEO of an exchange, or a depository, will be capped at two terms of five years each, up to the age of 65 years.

Other changes include uniform ownership norms across exchanges and depositories. Eligible financial and foreign institutions can hold as much as 15% in depositories and clearing corporations. Independent directors can have three terms of three years each, up to the age of 75 years.

With respect to takeover regulations, Sebi has proposed changes related to revision of the open offer price. This is after public consultations on a discussion paper issued in March reviewing Substantial Acquisition of Shares and Takeovers Regulations.