For exit, anchors now to wait for 90 days after IPO as Sebi tightens norms

Sebi board sets minimum 5% gap in issue price bands

The Securities and Exchange Board of India (Sebi) in its last board meeting of the year, on Tuesday, tightened norms for public share sales.

The board has tightened rules for IPO proceed utilisation, prescribed a minimum 5 per cent gap in IPO price bands, extended the lock-in period for anchor investors to 90 days, and capped the amount a majority investor can sell through an offer for sale.

Anchor investors have to lock in their investment for 30 days for 50 per cent of the portion allocated to them. For the remaining portion, a lock-in of 90 days will be applicable. Sebi has also restricted investors holding over 20 per cent stake to sell a maximum of 50 per cent of their shares through an offer for sale. Both these measures are aimed at reducing price volatility after listing. 

“Selling shareholders and merchant ban­kers will now be more realistic in pricing the issue,” said a securities lawyer.

Shares of food delivery major Zomato and One97 Communications, the parent of Paytm, had slipped 9 per cent and 13 per cent, respectively, when the mandatory one-month lock-in period for their anchor investors ended.

“We do not want to dictate IPO valuations. But pricing is a critical issue and a better explanation on the basis of which pricing is arrived in the offer document may be a good practice, especially for new-age companies which are typically loss-making. These companies have their own ecosystem and their own capital structure, and it is important to educate investors about this,” Tyagi said at a recent event.

For book building issues, a minimum price band of at least 105 per cent of the floor price will now be applicable. The difference in price band has been too narrow in some issuances, forcing the regulator to tweak this rule, said experts.

Sebi has also tightened disclosures around IPO objectives. It said the amount for general corporate purpose (GCP) will not exceed 25 per cent of the total amount being raised “where the issuer company has not identified acquisition or investment target, as mentioned in objects of the issue in the draft offer document and the offer document”. However, such limits will not apply if “suitable specific disclosures about such acquisitions or investments are made in the draft offer document and the offer document”.

Credit rating agencies (CRAs) will be permitted to act as monitoring agency instead of Scheduled Commercial Banks and Public Financial Institutions for utilisation of issue proceeds, including GCP. Such monitoring will continue till issue proceeds are fully utilised instead of 95 per cent at present.

“The inability to raise money for future unidentifiable acquisitions would impact capital raising plans of some unicorns, particularly where such companies may not have any other use of capital and where existing shareholders are not keen to sell. A large amount of flexibility to use funds is a hallmark of those listing their equity shares on international stock exchanges and investors vote with their feet when they are not happy with the use of such funds, including any new acquisition which they don’t like,” said Yash Ashar, partner & head-capital markets, Cyril Amarchand Mangaldas.

REGULATOR DIKTAT

• Anchor investors to lock in 50 per cent of their investment for 90 days
• Investors holding over 20% stake can sell a maximum of 50% of their shares through offer for sale
• Regulator has tightened disclosures around IPO objectives
• Valuation reports must for preferential issue allotments resulting in change of control
• Issuer companies have to adhere to guidelines provided under AoA for pricing of preferential issue, besides to Sebi’s ICDR norms
• A third of IPO allocations under NII category reserved for application size of Rs 2 lakh to Rs 1 million

He said the proposed changes to the law could have a long-term impact and the regulator could have prescribed additional and more detailed continuous disclosures and monitoring keeping in mind existing requirements, including shareholder approval for proposed acquisitions. “These changes may impact plans of issuers planning to list on Indian stock exchanges,” said Ashar.

Sebi has also revised the allocation for wealthy investors, with a third of the allocation reserved for those with an application size of Rs 2 lakh to Rs 1 million and two-thirds for applications higher than Rs 1 million.

The regulator has mandated valuation reports if preferential issue allotments result in a change of control. Issuer companies have to adhere to guidelines provided under their Articles of Association for pricing of preferential issue, in addition to pricing guidelines under Sebi’s ICDR Regulations.

“An additional requirement for a valuation report from a registered independent valuer shall be required in case of change in control/allotment of more than 5 per cent of post issue fully diluted share capital of the issuer company to an allottee or to allottees acting in concert… A committee of independent directors shall be required to provide a reasoned recommendation, along with their comments on all aspects of preferential issuance including pricing,” Sebi said in its report.

The board has amended the AIF Regulations, to introduce Special Situation Funds, a sub-category under Category I AIF, which can invest in certain kinds of ‘stressed assets’.

The regulator rationalised the time period for filing settlement applications by entities to 60 days from the date of receiving show-cause notice. The watchdog has also decided to introduce provisions relating to appointment or re-appointment of persons who fail to get elected as directors, including whole-time directors, managing directors and managers, at the general meeting of a listed entity.