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May 21, 2024

SEBI Amends IPO Regulations to Simplify Business Operations for Companies

The Securities and Exchange Board of India (SEBI) has introduced significant amendments to its regulations to streamline the process for companies planning Initial Public Offerings (IPOs). This move aims to enhance the ease of doing business and provide greater flexibility for firms looking to list their shares on stock exchanges.

One of the key changes announced by SEBI is the adjustment of rules regarding the offer for sale (OFS). Previously, any changes in the size of an OFS required a fresh filing based on both the issue size in rupee terms and the number of shares. Under the new guidelines, SEBI has simplified this process by stipulating that changes will now be based on only one of these criteria. This alteration is expected to reduce administrative burdens and expedite the IPO process for companies.

Additionally, SEBI has addressed the issue of minimum promoter contribution (MPC). Often, companies promoted by entrepreneurs undergo several rounds of funding before their IPO, leading to situations where the promoters’ holdings fall short of the required 20 percent of the post-offer equity share capital. The updated rules now allow promoter group entities and non-individual shareholders holding more than 5 percent of the post-offer equity share capital to contribute towards the shortfall in MPC without being classified as promoters. This change provides much-needed flexibility for companies in fulfilling their MPC requirements.

To further ease the process, SEBI has clarified that equity shares resulting from the conversion of compulsorily convertible securities held for at least a year before the filing of the draft red herring prospectus (DRHP) can be counted towards meeting the MPC requirements. This provision ensures that companies have more options to comply with the promoter contribution norms.

SEBI has also introduced flexibility in extending the bid closing date for IPOs

Jhumpa Lahiri

Jhumpa Lahiri

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