The market regulator on Friday proposed reducing the size of large initial public offerings (IPOs), a move that would allow Life Insurance Corp. of India to more easily comply with the rules for the initial sale of shares.
In a consultation paper, the Securities and Exchange Board of India (Sebi) proposed that companies with post-issue capital ₹10,000 crore will be needed to initially sell only 5% of the business to the public.
The proposal, if implemented, could help the next IPO of the country’s largest insurer LIC, as the value of the shares offered in the insurance giant’s IPO could be too high to be absorbed by investors.
It may also take a lot longer for LICs to comply with the 25% minimum floating standard, as even a 5% sale would be larger than most sales of shares to the public in India.
All listed companies are required to comply with the minimum 25% public participation requirement within three years of listing and those that initiate an IPO must sell at least 10% of the outstanding shares upon IPO. in stock exchange.
“The securities market, including the initial public offering (IPO), is dynamic and must keep pace with changing market conditions. Currently, every company must comply with the minimum requirement for public offering of at least 10% of paid-up capital after issuance. This can be tedious for large emitters, ”says Sebi’s discussion paper.
The market regulator said that large issuers already held investments by private or strategic investors who are classified as public shareholders after listing and, therefore, impose a minimum of 10% of market capitalization after issuance at the time of the IPO leads to unnecessary dilution of the holdings of existing shareholders and is a constraining factor for listing.
Sebi said that an analysis of past large issues indicates that about 24% of issuers with a post-issue market cap above ₹4.000 crore have just met the minimum public offer (10%) required for the listing of securities.
In cases where the market value after issuance is greater than ₹1 trillion, companies may struggle to comply with the minimum public shareholding (MPS) of 25% within three years of listing, according to the Sebi newspaper.
Currently, if a company’s market capitalization is greater than ₹10,000 crore, it must sell at least 10% when it goes public.
Sebi proposed that in such cases, the company could launch an IPO to sell shares worth ₹1000 crore plus 5% of its market cap exceeding ₹10,000 crore.
The regulator said it may be necessary to give larger emitters more time to comply with the 10% MPS first and then the 25% rule.
As a result, Sebi proposed that if the size of the IPO is between ₹10,000 crore and ₹1 trillion, the company may be required to meet the MPS of 10% within 18 months and 25% within three years from the date of listing.
If the company’s market capitalization is greater than ₹1 trillion, the minimum public shareholding of 10% could be reached in two years and 25% in five years from the date of listing.
Sebi invited comments from interested parties until Dec. 7 on the discussion paper.
If the proposal is accepted, Sebi suggested that the minimum offer and public allocation under an offering document be at least 25% for each participating share class if the post-issue capital of the company is ₹1,600 crore.
The size of the offer must be at least 25% of equity or equivalent to the value of ₹400 crore if the post-issue capital of the company is greater than ₹1600 crore but less than ₹4000 crore.