Firms have to fresh file offer documents if changing issue size: Sebi

Firms have to refile documents only if they alter capital raising by over 50% in offer for sale

The Securities and Exchange Board of India (Sebi) has come out with new rules that require filing of fresh offer documents in case there is a change in the issue size of fundraising from the capital markets. 

According to the new norms, which the markets regulator introduced on December 31, a company would require to make a fresh filing of its offer document if it alters the fresh capital raising amount by more than 20 per cent in its initial public offering (IPO) or by more than 50 per cent in its offer for sale (OFS). 

Earlier, the requirement applied to a change of 20 per cent of the issue size, comprising both the offer for sale (OFS) and fresh issue. 

Many private equity funds and even promoters have sold part of their shareholding in companies through the OFS route in the past three years. 

Explaining the rationale, market experts said the move would remove the fear of issues getting impacted even though there is a change in the OFS component. 

“This is a positive move by the market regulator as a change in the OFS by the promoters or other selling shareholders does not impact the issue objectives or use of proceeds. This move shall help companies, changing only the OFS component, albeit by less than 50 per cent, in avoiding the entire process of re-filing,” said Pranav Haldea, managing director, Prime Database. 

Other than this, Sebi has made fresh addition of a criterion for filing the updated offer documents. According to it, if there is any potential risk arising after filing the draft prospectus, the company needs to update offer documents. Further, an update is required if there is an aggregate increase of 5 per cent or above in the shareholding of the promoter group or shareholding of the top 10 shareholders. Any variation in the net profit after tax in excess of 10 per cent over the last financial numbers and any new litigation after filing the offer documents need to be updated in the offer document. 

To make it effective, Sebi has amended its Issue of Capital and Disclosure Requirements (ICDR) regulations.

Besides, Sebi has made certain changes in the allocation of the net offer. It says that if an issue is made other than through the book building process, a minimum 50 per cent will be allocated to the retail investors as well as other investors, including corporate bodies and institutions, irrespective of the number of specified securities applied for, Sebi said in the regulation. 

These new amendments are part of the recommendations of Sebi’s primary market advisory committee (PMAC) and ICDR committee. The proposal was cleared by the Sebi board in June last year. Sebi constituted the ICDR committee under the chairmanship of Prithvi Haldea in June 2017 to review the regulations and simplify the language and complexities in the existing ICDR regulations, along with incorporating changes/new requirements according to changes in market practices and regulatory environment. 

The exercise took over eight months and the committee identified over 150 changes that were deliberated at the PMAC. Later, the committee had floated a consultation paper and suggested a slew of changes in the said regulations.