2021 was the year of IPOs as Indian companies raised 1.19 trillion rupees from the primary market over the year. As a result, the major regulatory body SEBI has developed new and strict guidelines for the IPS. Many experts believe that it was the need of the hour as new-age technology companies have been drafting dear people to raise funds.
However, many companies do not have any track records of profitability and are still filing the draft papers for the IPO.
Hence, to safeguard retail investors and their interests, SEBI has made the rules stricter for listing new companies.
What changes are proposed by SEBI for IPO?
Large shareholders were Barred from selling their entire stake.
Currently, the largest shareholder can sell their entire holding through an offer for sale. According to the new guidelines issued by SEBI, the large shareholder pattern has been changed; shareholders of the company having more than 20% of stake in the company cannot sell the entire holding on a listing day.
The maximum they can sell is 50% of the total state.
This move ensures that retail investors are intact and more confident about the company. SEBI brought about this change to give the company more stability about the post issue.
Spending on Proceeds
The companies now can use only 25% of the IPO proceeds for unidentified acquisitions. For another spending on acquisition will be kept up to 35%.
Rating Agencies will continuously monitor how the company uses the funds from its proceeds.
AS STATED IN RED HERRING PROSPECTUS, the SEBI is an excellent move to ensure that funds are raised and used.
Lock-in period for anchor investors
SEBI has increased the lock-in period for the anchor investors. At present, the locking period is 30 days now. It has been changed to 90 days.
The change will prevent the retail investor’s share price volatility and losses.
It will apply to only 50% of the allocation to anchor investors, and it will come effectively from April. The presence of anchor investors is always a positive sign for retail investors.
In the recent listings of New Age companies when anchor investors existed just after the lock-in period, the share market and, for example, Paytm and Zomato.
In addition, the lock-in period for non-promoters in the preferential issue of equity shares will be reduced to 6 months from 12 months.
More Strict About Price Band Norms
Companies give a range of prices for investors to apply for an IPO. The maximum price is the upper price band, whereas the lower price is the floor price.
There is no such rule to set the difference between the two, but now the upper and floor band difference will be at least 5%.
The quota for Retail Investors
One-third of the portion available to NICs will be reserved for applicants with an application size of more than rupees 2 lakh and up to 10 lakh.
The two-thirds of the portion available to NICs will be reserved for the applicants with an application size of more than 10 lacs.
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Why SEBI Proposed the Changes?
More and more startups are expected to come with their IPO in 2022. Therefore, the above changes by SEBI are a positive move for safeguarding retail investors’ interest in the upcoming months.