SEBI Tightens Rules For IPOs
The Securities and Exchange Board of India
approved several new rules on Tuesday to further restructure the country's
initial public offering sector.
At the occasion that funds are raised
from the public for the purpose of such acquisitions, the regulators' board
approved required disclosure by corporations of their intended acquisition
target. The rule was enacted in response to many new-age technology firms that
mentioned the use of fresh funds for acquisition purposes in their draft red
herring prospectus without providing any additional information.
"The amount for such objectives and
amount for general corporate purposes shall not exceed 35 percent of the total
amount being raised," the regulator said if a company chooses not to
reveal its intended acquisition targets while aiming to use the funds for
inorganic growth.
Furthermore, the regulator has imposed
additional restrictions on how many shares current shareholders of a firm with
no track record wanting to go public can sell under an offer for sale (OFS).
Investors who owned more than 20% of the company prior to the IPO will only be
eligible to sell half of their shares in the OFS, according to SEBI.
Similarly, investors who owned less than
20% of a firm prior to the IPO will only be able to sell 10% of their shares in
the OFS. The restriction was enacted in response to the large share of OFS in
recent startup IPOs.
The regulator has also mandated that a
credit rating agency operate as a watchdog for company’s usage of funds for the
purpose for which they were raised. According to SEBI, the IPO funds will be
monitored until 100% of the funds have been utilized instead of the earlier
limit which was 95%.
Anchor investors' lock-in time has been
extended to 90 days from the date of allotment under the new guidelines. The
lock-in period for preferential issue has been decreased for both promoters and
non-promoters at the same time.
SEBI further noted that after failing to be
elected, any person can only be appointed or reappointed as a director of a
business, including as a full-time director, managing director, or manager,
with the prior permission of shareholders.
Finally, the regulatory board has now
approved mutual funds to use the Indian Accounting Standard (IND AS) starting
in the fiscal year 2023-24, as well as discarding redundant sections and
clarifying existing regulations. There have also been changes to regulations
governing alternative investment funds and foreign portfolio investors.