In a consultation paper, Sebi proposed that companies with a post-issue capital of above ₹10,000 crore will be required to initially sell only 5% of the company to the public
The markets regulator on Friday proposed to reduce the size of large initial public offerings (IPOs), a move that would make it easier for state-run Life Insurance Corp. of India to comply with initial share sale rules.
In a consultation paper, the Securities and Exchange Board of India (Sebi) proposed that companies with a post-issue capital of above ₹10,000 crore will be required to initially sell only 5% of the company to the public.
The proposal, if implemented, may help the upcoming IPO of the country’s largest insurer LIC since the value of the shares on offer in the IPO by the insurance behemoth may be too high for investors to absorb.
It may also take much longer for LIC to comply with the 25% minimum floatnorm since even a 5% sale would be larger than most share sales to the public in India.
All listed companies are required to comply with the minimum public shareholding requirement of 25% within three years of their listing and those launching an IPO need to sell at least 10% of the shares outstanding in the IPO initially.
“The securities market, including the market for initial public offerings (IPOs), is dynamic and needs to keep pace with the evolving market conditions. At present, every firm needs to comply with the minimum offer to the public requirement of at least 10% of post-issue paid-up capital. This may be cumbersome for large issuers," said the Sebi discussion paper.
The markets regulator said large issuers already have investments by private equity or strategic investors who are classified as public shareholders post-listing and, therefore, mandating minimum 10% of post-issue market capitalization at the time of IPO leads to unnecessary dilution of holdings of existing shareholders and is a constraining factor for listing.
Sebi said that an analysis of the past large issuances indicates that approximately 24% of the issuers with a post-issue market capitalization of more than ₹4,000 crore have just met the minimum offer to public rule (10%) required for listing of securities.
In cases where post-issue market value is more than ₹1 trillion, there is a possibility that the companies may find it difficult to comply with the minimum public shareholding (MPS) of 25% within three years of listing, the Sebi paper said.
Currently, if a company’s market cap is above ₹10,000 crore, it needs to sell at least 10% in its IPO.
Sebi has proposed that in such cases the company can float an IPO for selling shares worth ₹1,000 crore plus 5% of its market cap exceeding ₹10,000 crore.
The regulator said that there may arise a need to provide additional time to large issuers to first comply with 10% MPS and subsequently with the 25% rule.
Accordingly, Sebi has proposed that if the IPO size is between ₹10,000 crore and ₹1 trillion, the company may be required to meet the MPS of 10% within 18 months and 25% within three years from the date of listing.
If the market cap of the company is more than ₹1 trillion, the minimum public shareholding of 10% could be achieved in two years and 25% within five years from the date of listing.
Sebi has sought comments from interested parties till 7 December on the discussion paper.
If the proposal is accepted, Sebi has suggested that the minimum offer and the allotment to the public in terms of an offer document shall be at least 25% for each class of equity shares if the post-issue capital of the company is ₹1,600 crore.
The offer size has to be at least 25% of equity or equivalent to the value of ₹400 crore if the post-issue capital of the company is more than ₹1,600 crore but less than ₹4,000 crore.
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