Capital markets regulator Sebi has proposed an overhaul of the norms dealing with minimum public shareholding by relaxing the deadline, as well as giving more flexibility in diluting the promoter stake.
The proposed framework, if implemented, will ease the immediate dilution burden on issuers, while still ensuring gradual compliance with public shareholding requirements. As part of this approach aimed at ease of doing business, the regulator has suggested retaining the retail quota at 35%, in line with the existing regulations. Instead of reducing retail participation, Sebi is now looking at addressing issuer’s concerns by amending rules related to minimum public offer thresholds.
This marks a shift from its earlier consultation paper, issued on July 31, which had proposed cutting the retail quota for IPOs above `5,000 crore from 35% to 25%, citing difficulties faced by issuers in managing large issues.
In the new consultation paper issued on Monday, Sebi has noted that very large issuers often struggle to dilute substantial stakes through the IPO, as the market may not be able to absorb such a large supply of shares. This was one of the reasons for the tiny 3% dilution in the mega LIC public float in May 2022.
The proposed framework is aimed at making listings more feasible for such companies. Currently, large companies are required to offer a higher percentage of their shareholding to the public upfront, which often results in massive IPO sizes. These can be difficult for the market to absorb and may discourage companies from coming to the primary markets at all.
Under the proposed rules, instead of adhering to a fixed high percentage which currently pegged at 25% within the first three years of listing, large issuers will have the flexibility to start with smaller IPOs and gradually meet the shareholding requirements over a longer period.
For instance, companies with a market capitalisation between Rs 50,000 crore and Rs 1 trillion will need to make a minimum public offer of at least Rs 1,000 crore and 8 percent of post-issue capital, with the 25 percent minimum public shareholding target to be achieved within five years.
For those with a market capitalisation of Rs 1-5 trillion, the minimum public holding will be Rs 6,250 crore and at least 2.75 percent of post-issue capital. In such cases, if public shareholding at the time of listing is below 15 percent, it should be raised to 15 percent within five years and 25 percent within 10 years. However, if public shareholding is already 15 percent or more at listing, the 25 percent threshold should be met within five years.
In case of companies valued at over Rs 5 trillion, the proposed minimum float will be Rs 15,000 crore and at least 1 percent of post-issue capital, subject to a minimum dilution of 2.5 percent. In this case too, issuers with less than 15 percent public shareholding at listing will be given up to 10 years to reach the 25 percent mark, while those already above 15 percent will need to achieve the same within five years.
Sebi said the staggered approach will reduce the pressure of large-scale dilution immediately after listing. It will also prevent an "oversupply of shares in the market".
In recent years, issuers like Life Insurance Corporation and Hyundai India had hit the market with large IPOs. Also IPO sizes have been growing steadily, with the average issue size rising to Rs 2,057 crore in 2024-25 from Rs 1,488 crore in 2019-20.
Currently, firms with a market capitalisation of up to Rs 1,600 crore must list with 25 percent public shareholding at the time of IPO.