(Bloomberg) — India’s capital market regulator Tuesday unveiled a series of measures to improve and strengthen fund raising norms for companies in what has been a record year for initial public offerings.
The Securities & Exchange Board of India tightened rules for share sales by anchor investors, capped the usage of IPO proceeds for general corporate purposes and unidentified acquisitions, and made it easier for founders to raise funds through a preferential allotment of shares. It also asked credit rating agencies to monitor the utilization of IPO funds and present their report before the company’s audit committee every quarter.
The changes in IPO rules come at a time when the nation is witnessing a rush of new-age, consumer-technology based companies, some of them still unprofitable, to tap the stock markets. It also comes close on the heels of sweeping rules announced by China on overseas IPOs of the country’s firms.
A little over 110 companies ranging from online grocers to food delivery and beauty startups listed in Mumbai this year raising almost $18 billion, according to data compiled by Bloomberg. There are many more share sales lined up for next year including the proposed mega listing by state-owned Life Insurance Corp. of India, which could raise at least 400 billion rupees ($5.4 billion).
In its board meeting held on Tuesday, the market regulator decided that from April, cornerstone investors will be allowed to sell only half of their shares 30 days after allotment. The remaining portion is required to be held for 90 days, a step that will help avoid extreme volatility in the first month of listing and protect smaller investors.
India’s digital-payments giant Paytm’s shares plunged 7.8% and food-delivery start-up Zomato’s shares dropped as much as 7.2% as the mandatory one-month post-listing lockup on sale of shares allotted to anchor investors expired.
Sebi capped the usage of IPO proceeds for general corporate purposes and unspecified strategic investments at 35%. It also changed the pricing formula for preferential issues and halved the lock-in period for founders to 18 months.
“Inability to raise money for future unidentifiable acquisitions would impact capital raising plans of some unicorns,” said Yash Ashar, partner & head – capital markets at law firm Cyril Amarchand Mangaldas.
Some other changes mandated by the regulator:
- Sebi mandated that price band in case of all public issues through the book-building process must have a minimum gap of 5% between the lower and upper price band
- It mandated that major shareholders, with over 20% stake, can sell only 50% of their holdings in an offer-for-sale, especially in the case of technology firms, which lack a track record
- It introduced a new sub-category for non-institutional investors of public issues
- Get more details here
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