SEBI Aims To Tighten Listing Rules Amid Record IPOs This Year. Check Details

The Securities and Exchange Board of India has sought to limit a maximum 35 per cent of proceeds for acquisitions and unspecified strategic investments

New Delhi: In a new set of proposed rules, markets regulator Sebi is looking to amend guidelines on how companies can spend cash raised through initial public offerings and how quickly big investors can exit with an aim to offer protection to smaller shareholders aiming at the upcoming issues.

The Securities and Exchange Board of India has sought to limit a maximum 35 per cent of proceeds for acquisitions and unspecified strategic investments, as per the consultation paper published on Tuesday, according to news agency Bloomberg.

It is also looking at longer lock-in for so-called anchor investors to prevent a quick post-listing exit. The suggestions on the proposal have been sought by November 30.

The proposed changes come on the back of India witnessing a record number of IPOs this year followed by the central bank's decision to impose limits on borrowers seeking to buy shares of a new listing.

Paytm, counted as one of the biggest IPOs in history will be listed in the stock market this week and other issues such as beauty startup Nykaa almost doubled on its first trading day.

What are the proposed rules?

* As much as 35 per cent of the IPO issue can be used for inorganic growth initiatives and general corporate purposes, according to Bloomberg.

* Technology companies often need to raise funds for expanding into new markets, acquiring customers or other firms, objectives that are often broadly lumped under the category of ‘Funding of Inorganic Growth' that create uncertainty for investors, the regulator added.

One of the other rules mentions that IPO of firms with no identifiable promoters, a share sale by significant shareholders will be capped at 50 per cent of their pre-issue holding. Also, note that investors holding more than 20 per cent will be deemed a ‘significant shareholder.'

* Such shareholders will face a lock-in period of six months after the share sale. This may include venture capital funds, alternate investment funds, Sebi said.

At least 50 per cent of the anchor investors should be those who are willing to stay invested for at least 90 days. This compares with 30 days currently. The proposals from Sebi follow the Reserve Bank of India's decision to cap lending for investments in new listings at 10 million rupees per borrower, effective April 1, 2022.