Sebi may ease minimum public shareholding requirements for large IPOs

The Minimum Public Shareholding requirements for companies coming out of large Initial Public Offerings (IPOs) might be eased. Securities and Exchange Board of India(Sebi) has proposed to allow companies whose market value post listing could be Rs10,000 to keep promoter shareholding at 95% for a fixed period. This means these companies need to dilute only 5% of promoter holdings in the IPO. The move will give Private Equity investors an easier exit and give prompters breathing space from unfavourable dilutions to meet to public shareholdings norms

“It has been represented that such large issuers already have investments by private equity and other strategic investors who are classified as public shareholders post- listing and therefore, mandating minimum 10% of post issue MCap at the time of IPO leads to unnecessary dilution of holding of the promoter or existing shareholder and is therefore a constraining factor for listing,” Sebi said in a discussion paper seeking public comments by December 7.

“Market participants have provided feedback that the compliance with minimum offer to public requirement i.e. at least 10% of post issue paid up capital calculated at offer price .. is cumbersome for large issuers.”

At present, companies with a post issue market capital of above Rs 4000 crore has to offer at least 10% to public. Subsequently, companies need to bring down their promoter holding to 75% over a period of time.

“Sebi is taking the right steps to provide additional flexibility in line with the requirements for large issuers especially for companies who have private equity investments. This is additional incentive for large private companies to look at listing,” said Pranjal Srivastava, an independent investment banker.

The regulator has recommended that if the post issue market capital is above Rs 10,000 crore and less than Rs 1,00,000 crore, then minimum public shareholding requirement of 10% should be achieved in 18 months and 25% within three years from the date of listing.

“..there could be a scenario in case of large and very large issuers that they may not be compliant with 10% MPS at the time of listing. Thus, there may arise a need to provide additional time to such issuers to first comply with 10% MPS and subsequently with 25% MPS,” Sebi said.

The regulator said if the post-issue market cap of the company is more than Rs 1,00,000 crore, then minimum public shareholding of 10% has to be achieved in two years and 25% within five years from the date of listing.

An analysis of past large issuances between Apr 01, 2014 and Oct 16, 2020 shows that about 24% of the issuers with post issue market capital of more than Rs 4000 Crores have just met the minimum offer to public rule of 10%.

The regulator said based on its analysis, it has observed that the average issue size of initial public offerings(IPO) on main board has increased in the last decade, while the number of issuers coming for IPO has declined.

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