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.