Sebi board meeting likely to tighten norms for IPO price bands, investors

The amount a majority investor can sell through offer for sale could be capped.

A December 28 board meeting of the Securities and Exchange Board of India (Sebi) may tighten norms for initial public offerings (IPOs).

The board may look to prescribe a minimum 5 per cent gap in IPO price bands, extend the lock-in period for anchor investors to 90 days and cap the amount a majority investor can sell through offer for sale.

The regulator is looking at whether there can be a preferred allocation for anchor investors who opt for a longer lock-in period, said a person familiar with the matter. If there are two anchor investors, one willing to stay locked in for a month and the other for 90 days, the issuer can give preference to the latter. “The issuer will then be required to disclose in the IPO prospectus the lock in period for each anchor investor and the percentage of the book that is allocated to a certain period of lock-in,” the person said.

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

The regulator is also likely to mandate more disclosures for new-age companies in the IPO prospectus. “The disclosures could be in the form of putting out additional financial parameters and more details explaining the rationale for the issue price. The regulator could also ask such companies to include more disclosures about their business model in the draft prospectus,” said the person quoted above.

Sebi chairman Ajay Tyagi said on Wednesday that it is important to protect the interests of retail investors putting money in IPOs. A disclosure based system and greater transparency from merchant bankers and issuers would help improve trust in the system, he said.

“We do not want to dictate IPO valuations. But pricing is a critical issue and better explanation on the basis of which pricing is arrived in the offer document may be a good practice, especially for the 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 had said at the event organised by AIBI.

Sebi may restrict investors holding over 20 per cent stake to sell a maximum of 50 per cent of their shares through the OFS. It also plans to tighten disclosures about IPO proceeds. “Raising funds for unidentified acquisition leads to some amount of uncertainty/ambiguity in the IPO objects," Sebi had said in its November discussion paper, adding that many offer documents cited acquisition plans without naming likely targets. “It is proposed to prescribe a combined limit of up to 35 per cent of the fresh issue size for deployment on such objects of inorganic growth initiatives and general corporate purpose, where the intended acquisition or strategic investment is unidentified in the objects of the offer.”

The regulator may also mandate valuation reports if preferential issue allotments result in change of control. Issuer companies will be asked 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.  

Agenda for Sebi’s board meeting

 

Board may look to prescribe a minimum 5 per cent gap in IPO price bands

 

Lock-in period for anchor investors may extended to 90 days from 30 at present

 

Investors that opt for longer lock-in may get preferred allocation

 

More disclosures for new-age companies in the IPO prospectus on pricing, financials and business model

 

Sebi may restrict investors holding over 20 per cent stake to sell a maximum of 50 per cent of their shares through the OFS

 

More disclosures on IPO proceeds on cards

 

May mandate valuation reports for preferential issue allotments resulting in change of control