InvestorQ : What are the new norms announced by SEBI to tighten the IPO process?
Shreya Mashelkar made post

What are the new norms announced by SEBI to tighten the IPO process?

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riya Ranade answered.
5 months ago
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2021 was one of the best years in India for fundraising through IPOs in 2021 as 63 companies raised over 1.19 lakh crores. However, as the fundraising process was dominated by new-age companies, a majority of which were loss-making, SEBI realized the need for certain changes in the overall public listing process. Hence, SEBI has recently announced a set of new rules to address gaps such as anchor investor lock-in period, price bands, etc. Here are the changes:

OFS
Since new-age companies do not have an identifiable promoter and may incur continuous losses, prominent shareholders selling their entire holdings on listing day can result in negative investor sentiment and price fall. Now, SEBI has mandated that shareholders, who hold more than 20% stake, cannot sell more than 50% of their entire holding on a listing day.

Objective of IPO
In their DRHP, new-age companies state that a part of their fundraising objective is ‘funding of inorganic growth initiatives, which creates a sense of vagueness as there are no listed targets. Now, new-age companies, which do not list identifiable acquisition or investment targets, can only use 25% of the IPO proceeds towards inorganic growth. For others, the maximum limit is 35%.

Lock-in Period
Previously, anchor investors were allowed to sell their holdings after 30 days of the IPO. Now, SEBI has increased the lock-in period to 90 days to further stabilize the price fall resulting from investor sell-offs. This will be applicable for only 50% of the allocation to anchor investors.

Price Band
With the new rules, the difference between the upper price and the floor price of the shares shall be at least 105%.

Other rules (AoA and Valuation Report)
After the new rules, listed companies will have to adhere to AoA (Articles of Association) and SEBI’s norms. Furthermore, if any company offers more than 5% of its shares to any entity, it has to furnish a valuation report and submit it to SEBI for review.
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