What were the major changes that SEBI announced in the regulation of IPOs at its board meeting?

Here are some of the key changes announced by SEBI on the IPO front.

· Firstly, companies issuing shares will have to be more specific and focused about usage of funds. For example, SEBI has limited the allocation to inorganic M&A to 25% if targets are not yet identified. There will also be a 10% limit on general corporate purposes expenses. Rating agencies will monitor use of IPO funds and report to Audit Committee.

· In the case of an offer for sale by companies without track record. selling shareholders with more than 20% holding can only offer up to 50% of their pre-issue holdings in the OFS. However, if holdings are less than 20%, they can at the most offer 10% of pre-issue holdings. This will ensure skin-in-the-game for the promoters in the business.

· Anchor lock-in has been extended, albeit in a different way. For example currently, there is a 30-day lock-in for all anchor investors, resulting in volatility on the day anchor lock-in ends. We saw this in digital IPOs like Paytm, PB Fintech and even Nykaa. Now only 50% of anchor allotment will have a 30-day lock-in. For the balance 50%, the lock in will now stand enhanced to 90 days. This new rule will be effective from April 2022.

· Currently, the non-institutional investor (NII) or HNI portion has an allocation of 15% in any IPO. Going ahead, this 15% allocation will be split into 2 parts. One-third of this allocation will be set aside for applications in the Rs.2 lakhs to Rs.10 lakhs category and the balance for above Rs.10 lakhs applications. NII allotment will be via draw of lots.

· Lastly, the price band has bene formalized at 5% gap, so that the band is really meaningful. SEBI has stipulated the minimum price band must be at least 105% of the floor price. That will avoid narrow price bands.