Sebi moots new IPO float slabs, longer timelines for mega listings

In a bid to ease execution dangers and appeal to extra mega listings, India’s capital markets regulator has proposed a brand new five-slab framework for preliminary public choices (IPOs), chopping minimal public provide (MPO) sizes and stress-free shareholding norm deadlines for issuers above ₹50,000 crore in market cap.

The Securities and Trade Board of India (Sebi) on Monday floated a session paper that proposes splitting thresholds into 5 bands: ₹4,000 crore– ₹50,000 crore, ₹50,000 crore– ₹1 trillion, ₹1 trillion– ₹5 trillion, and above ₹5 trillion. This replaces the present broader buckets that prime out at over ₹1 trillion.

The session paper shall be open for public feedback until 8 September.

For the ₹50,000 crore– ₹1 trillion band, Sebi has proposed an MPO of ₹1,000 crore and a minimum of 8% of post-issue fairness, changing the present 10% requirement for all issuers above ₹4,000 crore. For ₹1 trillion– ₹5 trillion, the MPO can be ₹6,250 crore and a minimum of 2.75%. For issuers above ₹5 trillion, the MPO can be ₹15,000 crore and a minimum of 1% dilution, with a tough flooring of two.5% fairness to be supplied.

The regulator has additionally proposed easing of timelines to achieve minimal public shareholding (MPS) for the bigger cohorts. Issuers within the ₹50,000 crore– ₹1 trillion band would get 5 years to achieve 25% public shareholding, versus three years now.

For issuers above ₹1 trillion, if public shareholding on itemizing is beneath 15%, they need to attain 15% inside 5 years and 25% inside 10 years; whether it is above 15% at itemizing, the 25% threshold should be met inside 5 years.

Sebi stated very massive points are laborious for the market to soak up without delay, and forcing speedy follow-on dilution can create an overhang that weighs on share costs, even for basically sturdy firms.

“Massive issuers face challenges in endeavor substantial dilution of fairness shares by way of IPOs, as such massive choices could also be tough for the market to soak up,” the paper stated, including that this might deter large firms from itemizing domestically.

Presently, issuers that dilute 5–10% at IPO should offload an extra 15–20% inside 5 years. The problem is very acute for cash-rich, worthwhile firms that aren’t in a high-growth section, and for PSUs that battle to satisfy present timelines.

Illustratively, for a ₹10 trillion issuer diluting 2.5%, the IPO can be ₹25,000 crore; relying on the value, 16.7–50 crore shares can be obtainable for buying and selling on day one, comfortably above the minimal free-float counts seen in large-cap indices, the paper stated.

In a key change from a 31 July session paper, Sebi has proposed to retain the retail quota at 35% for IPO allocations, dropping the sooner thought to cut back it to 25% for points above ₹5,000 crore, arguing that the brand new MPO framework addresses execution challenges with out trimming retail participation.

The regulator has additionally proposed extending the brand new MPS timelines to current listed firms that haven’t met present thresholds: these nonetheless inside their permitted window can transfer to the revised schedule, whereas these already non-compliant may additionally swap, with penalties persevering with to use till the modifications come into drive.

Specialists stated the proposal undeniably eases execution for very massive IPOs, making them marketable with out extreme fairness give up.

On the similar time, such skinny floats may hamper liquidity and impair post-listing worth discovery, Hardeep Sachdeva, a senior associate at AZB & Companions stated. “Extending the timeline to achieve a 25% public stake over 5-10 years injects welcome flexibility, smoothing issuance pressures and minimizing pressured promoting,” Sachdeva stated.

The view was echoed by Rohit Jain, managing associate at Singhania & Co. “Decreasing the MPO for giant issuers will seemingly scale back execution danger. Mega IPOs typically face the problem of market absorption. A smaller preliminary provide dimension is less complicated for the market to digest, decreasing the danger of undersubscription and a failed IPO,” Jain stated, including that the session lands amid heightened chatter round potential mega listings, together with the widely-discussed IPO of Reliance Jio.

On the flip aspect, the regulator’s proposals carry the danger in sustaining the momentum when it comes to liquidity and investor enthusiasm. Sachdeva stated that Sebi “should fastidiously guard in opposition to extended low float and embody interim milestones or disclosures to keep up investor safety and wholesome market participation; and guarantee actual worth discoveries”.

Ketan Mukhija, a senior associate at Burgeon Legislation additionally sounds warning. “Sebi’s proposals decrease the entry barrier for mega-cap IPOs and sensibly stagger public shareholding, however with solely 2.5–8% float at itemizing and timelines of as much as 10 years, the problem shall be to maintain liquidity, guarantee honest worth discovery, and keep investor confidence,” Mukhija stated.