SEBI tightens disclosure, IPO proceeds norms

In its board meeting on Tuesday, the Securities and Exchange Board of India (SEBI) approved several measures related to initial public offers (IPOs). Among the reforms passed by the markets regulator today were the ones related to utilisation of issue proceeds, disclosure, lock-in provisions, preferential issues and more.

On the front on utilisation of IPO proceeds, SEBI ruled that credit rating agencies (CRAs) registered with its board shall be permitted to act as monitoring agencies from now on, instead of scheduled commercial banks (SCBs) and public financial institutions (PFI). These agencies shall continue to monitor the issue till 100% of proceeds utilisation, instead of the current timeframe of 95% utilisation, the watchdog said in a statement on Tuesday.

SEBI has mandated that the amount raised for general corporate purposes shall also be brought under monitoring. The utilisation of such part of the proceeds shall be disclosed in the monitoring agency report, it added. The monitoring agency report shall be placed before the audit committee for consideration “on a quarterly basis” instead of “on an annual basis”.

SEBI also amended existing rules for draft red herring prospectus (DRHP) filed on or after notification in the official gazette. Issuer companies are now allowed to use only 35% of the amount being raised through an IPO towards general corporate purposes if it lists objects for future inorganic growth in its IPO offer documents, but does not specify acquisition or investment target.

The amount earmarked for objects where the company has not identified acquisition or investment target, as mentioned in objects of the issue in the draft offer document and the offer document, shall not exceed 25% of the amount being raised by the issuer, the securities markets regulator said.

These limits shall not apply if the proposed acquisition or strategic investment object has been identified and suitable specific disclosures about such acquisitions or investments are made in the draft offer document and the offer document at the time of filing of offer documents, it clarified.

As per the new rules, if the DRHP is filed by the issuer without track record, then shares under offer for sale (OFS) by selling shareholders, individually or with persons acting in concert, holding more than 20% of pre-issue stake in the company, shall not exceed more than 50% of their pre-issue shareholding. For selling shareholders holding less than 20% of pre-issue shareholding of the issuer, shares offered for sale by them shall not exceed more than 10% of pre-issue shareholding of the issuer.