Securities and Exchange Board of India (SEBI) has proposed to increase the flexibility of minimum public shareholding (MPS) and minimum public offer (MPO) for companies aspiring to get listed aimed at “simplifying fund-raising by issuers in India,” according to a consultation paper released August 18.
SEBI, in the paper, proposed to increase the MPO for companies approaching listing, MPS post listing and extend the timelines to achieve the latter.
The paper proposes to change threshold buckets for post-issue market capitalisation (m-cap) to Rs. 4,000 crore to Rs. 50,000 crore, Rs. 50,000 crore to Rs. 1 lakh crore, Rs. 1,00,000 crore to Rs. 5 lakh crore and above Rs. 5 lakh crore. Currently, it is at Rs. 4,000 crore, Rs. 1 lakh crore and above Rs. 1 lakh crore. SEBI has also increased the timeline to comply with MPS.
“For issuers with a post-issue market cap above ₹50,000 crore but less than or equal to ₹1,00,000 crore, it is proposed that the timeline for compliance with the MPS requirement of 25% may be extended from the existing 3 years to 5 years from the date of listing,” SEBI said. This time was proposed to be fixed at five years to achieve 15% shareholding and 10 years to achieve 25% post listing MPS.
In another proposal, the capital market regulators sought public feedback on reducing the MPO for buckets starting from Rs. 50,000 crore to Rs.1 lakh crore.
Under the current regulations as per the Securities Contract Regulations Rules (SCRR), “issuers with a post issue market cap above ₹1,00,000 crore are required to ensure MPO of ₹5,000 crore and at least 5% of the post issue share capital; and are mandated to increase their public shareholding to at least 10% within 2 years from date of listing, and further to a minimum of 25% within 5 years from date of listing,” SEBI said in the paper.
For large issuers, diluting substantial stake through an IPO can be difficult as the market may not absorb the shares sold and may discourage new listings, SEBI reasoned. Further it said “mandating substantial equity dilution for meeting the MPS requirements, immediately after the IPO can lead to an oversupply of shares in the market, affecting share prices regardless of company’s financial strength.
“For very large market cap companies, this is a welcome proposal as this will reduce requirements to seek ad hoc or one time sebi relaxations,” said Arka Mookerjee. Partner, JSA Advocates & Solicitors.
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