Sebi tightens guidelines governing utilisation of IPO proceeds; tweaks OFS norms

Tightening guidelines for preliminary public providing (IPO), Sebi has put a cap on the utilization of the difficulty proceeds for unidentified future acquisitions and restricted the variety of shares that may be provided by important shareholders.
Also, the regulator has prolonged anchor buyers’ lock-in interval to 90 days and now, funds reserved for normal company functions can be monitored by credit standing businesses, in keeping with a notification issued on January 14.
Further, Sebi has revised the allocation methodology for non-institutional buyers (NIIs).
To give impact to those, Sebi has amended varied features of the regulatory framework underneath the ICDR (Issue of Capital and Disclosure Requirements) Regulations.

This comes amid a slew of new-age know-how corporations submitting draft papers with Sebi to lift funds via preliminary public choices (IPOs).
The regulator stated that if an organization in its supply paperwork units out an object for future inorganic development however has not recognized any acquisition or funding goal, the quantity for such objects and quantity for the overall company function (GCP) won’t exceed 35 per cent of the overall quantity being raised.
It is seen that currently, in a few of the draft supply paperwork, new-age know-how corporations are proposing to lift contemporary funds for objects the place the thing is termed as ‘funding of inorganic growth initiatives’ with out giving particulars.
“The amount so earmarked for such objects where the issuer company has not identified acquisition or investment target, as mentioned in objects of the issue in the draft offer document… shall not exceed 25 per cent of the amount being raised by the issuer,” Sebi stated.
However, such limits won’t apply, if the proposed acquisition or strategic funding object has been recognized and appropriate particular disclosures are made on the time of submitting of the supply doc.
Experts consider that the lack to mobilise cash for future unidentifiable acquisitions will affect the fundraising plans of some unicorns, notably the place such corporations could not have every other use of capital and the place present shareholders aren’t eager to promote.
In addition, Sebi stated the quantity raised for normal company functions can be introduced underneath monitoring and the utilisation of the identical can be disclosed within the monitoring company report.
The report can be positioned earlier than the audit committee for consideration “on a quarterly basis” as an alternative of “on an annual basis”.
Credit score businesses (CRAs) registered with the Sebi can be permitted to behave as a monitoring company as an alternative of scheduled business banks and public monetary establishments.
Such monitoring will proceed until 100 per cent as an alternative of 95 per cent utilisation of the difficulty proceeds as at current, Sebi stated.
The regulator has prescribed sure situations for offer-for-sale (OFS) to the general public in an IPO, the place draft papers are filed by an issuer with out a observe file.
Under this, Sebi stated shareholders with greater than a 20 per cent stake within the firm earlier than the IPO can be allowed to promote as much as 50 per cent of their shares within the OFS.
Further, buyers with lower than a 20 per cent stake in a agency earlier than the preliminary share-sale will have the ability to promote solely 10 per cent of their shares within the OFS.
With regard to the lock-in interval for anchor buyers, Sebi stated present lock-in of 30 days will proceed for 50 per cent of the portion allotted to anchor buyers and for the remaining portion, lock-in of 90 days from the date of allotment can be relevant for all points opening on or after April 1, 2022.
In case of book-built points, Sebi stated a minimal value band of not less than 105 per cent of the ground value can be relevant for all points opening on or after notification within the official gazette.
For book-built points opening on or after April 1, 2022, Sebi stated one-third of the portion out there to NIIs can be reserved for candidates with an utility dimension of greater than Rs 2 lakh and as much as Rs 10 lakh.
Further, two-thirds of the portion out there to NIIs can be reserved for candidates with an utility dimension of greater than Rs 10 lakh.
Allotment of securities within the case of NII class can be on ‘draw of lots’, as is at the moment relevant for the retail investor class.
The modification comes after the board of Sebi permitted proposals on this regard in its assembly final month.

It got here in opposition to the backdrop of 63 corporations elevating a file quantity of Rs 1.2 lakh crore via preliminary share-sales in 2021.
This was method increased than Rs 26,611 crore raised by 15 corporations via preliminary share gross sales in your complete 2020 and practically double the earlier better of Rs 68,827 crore by 36 corporations in 2017.