NEW DELHI: After taking feedback from foreign investors, market regulator Securities and Exchange Board of India (Sebi) has proposed to reduce the minimum offer size in an initial share sale to five per cent from the existing 10 per cent.
“It is proposed to reduce the minimum offer to the public for large issuers to 5 per cent of post issue market capital exceeding Rs 10,000 crore,” Sebi said in a consultation paper released Friday. Currently, all companies with a post-issue capital above Rs 4,000 crore are required to dilute at least 10 per cent shareholding in initial public offering (IPO).
While this was under consideration for a long time, the move came after large investors, particularly from the United States, flagged these concerns.
The issue was also discussed in a recent online meeting between Sebi chairman Ajay Tyagi, investors and industry players from the US on October 27. Currently, the US accounts for a third of total portfolio investors.
The proposed move will also help when large issues like Life Insurance Corporation (LIC) or HDB Financial hit the markets in coming months. The dilution is set to make things easier in the case of such IPOs. Sebi also noted that there could be a scenario where large issuers may not be compliant with 10 per cent minimum public shareholding (MPS) at the time of listing.
Accordingly, the regulator recommended that MPS of 10 per cent should be achieved in 18 months by such issuers and 25 per cent within three years from the date of listing. Furthermore, the regulator seeks to provide additional time to comply with MPS of 25 per cent for very large issuers with post issue market capitalization of `1 lakh crore and above.
For such issuers, it has been proposed that a minimum of 10 per cent should be achieved in two years’ and 25 per cent within five years from the date of listing, according to the markets regulator. The regulator said that the market participants have provided feedback stating that the compliance with minimum offer to public requirement— at least 10 per cent of post issue paid up — is cumbersome for large issuers. Sebi has sought comments from the public till December 7 on the proposal.