Sebi proposes to ease minimum shareholding norms for large IPOs

The Securities and Exchange Board of India (Sebi) has floated a consultation paper seeking public feedback on proposed relaxations in minimum public offer (MPO) requirements and timelines for achieving minimum public shareholding (MPS) for large companies. The move aims to simplify fundraising by issuers in India and enhance the ease of doing business.

Currently, big-ticket initial public offerings (IPOs) with a post-issue market capitalisation above ₹1 lakh crore are required to make a minimum public offer of ₹5,000 crore and at least 5% of their post-issue capital. It is mandatory for large issues to raise public shareholding to 10% within two years and to 25% within five years of listing.

Sebi noted that such provisions, introduced in 2021, have created challenges for mega issuers, especially profitable companies and public sector undertakings, which may not require frequent capital raising, according to a consultation paper released on August 18.

“Feedback from stakeholders suggests that large issuers face challenges in undertaking substantial dilution of equity shares through IPOs, as such large offerings may be difficult for the market to absorb. These constraints can act as a deterrent for large issuers from considering listing in India, thereby limiting the investment opportunities for Indian investors,” the capital markets regulator said in its paper.

In recent years, entities such as the Life Insurance Corporation of India and Hyundai Motor India Limited have undertaken large IPOs. For such large issuers, diluting substantial stakes through an IPO can pose challenges, as the market may not be able to absorb such a large supply of shares, which in turn may discourage such issuers from pursuing listings in India, the report noted.

“Mandating substantial equity dilution for meeting the MPS requirements immediately after the IPO can lead to an oversupply of shares in the market. This anticipation of further dilution may impact share prices, despite strong company fundamentals, and may adversely impact existing public shareholders,” it added.

The consultation paper proposes a tiered framework based on the recommendations of the Primary Market Advisory Committee (PMAC) of Sebi and internal discussions. For issuers with a market capitalisation above ₹50,000 crore but up to ₹1 lakh crore, the MPO threshold is proposed to be revised to ₹1,000 crore and at least 8% of post-issue capital, with five years allowed to achieve 25% MPS.

For companies valued above ₹1 lakh crore and up to ₹5 lakh crore, Sebi has suggested an MPO of ₹6,250 crore and at least 2.75% of post-issue capital, with 5–10 years to meet MPS depending on the initial public float. For the largest firms exceeding ₹5 lakh crore in market capitalisation, the minimum public offer could be set at ₹15,000 crore and at least 1% of post-issue capital, subject to a minimum 2.5% dilution.

Sebi emphasised that the changes would align fundraising needs with market absorption capacity, while preventing an oversupply of shares that could weigh on valuations.

"It's truly heartening that Sebi is following through on the Government's ease of doing business proposals. Changing the market cap linked minimum public shareholding thresholds and simultaneously increasing the timeline for compliance is a step in the right direction,” said Arka Mookerjee, Partner, JSA Advocates & Solicitors.

“For very large market cap companies, this is a welcome proposal as this will reduce requirements to seek ad hoc or one time sebi relaxations. This move will further ease the pressure on secondary capital markets, where only issuers with genuine capital requirements will tap into for a fund raise. We look forward for the implementation of these rules,” Mookerjee added.

The Sebi also clarified that the retail investor quota in IPOs will be retained at 35%, reversing an earlier proposal to reduce it to 25% for mega issues.

The regulator has invited public comments until September 8, 2025, after which it may recommend amendments to the Securities Contracts (Regulation) Rules, 1957, to the Ministry of Finance.