Sebi relaxes minimum public shareholding norm, widens and hikes anchor allotment quota, more time allowed to hit 25% public shareholding

At its 211th board meeting held on Friday, the Securities and Exchange Board of India has ratified major changes with regard to minimum public offer and minimum public shareholding (MPO/MPS) norms. Companies can now offload a minimum of 2.75% of their paid-up share capital in their IPO from the current 5%, only if their post-listing market capitalisation is in the ₹1 lakh crore to ₹5 lakh crore after the listing.

Currently, as per the Securities Contracts (Regulation) Rules, 1957, issuers with a post-issue market capital above ₹1,00,000 crore are required to offer to public ₹5,000 crore and at least 5% of the post-issue market cap. For large issuers, diluting a substantial stake 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 listing in India. Regular dilution post listing impacts issuers until MPS requirements are complied with, may lead to price overhang due to the impending equity dilution, thereby adversely affecting the interests of existing public shareholders.

Further, under the proposed MPO requirements, issuers are recommended to be permitted to list with a lower initial public float, hence, an extended period is required to allow them to achieve MPS of 25% in a gradual manner. Extended period for large issues also do not pose risk of low liquidity in large size IPO, states the Sebi release.

If a company has less than 15% public shareholding at the time of listing, it will need to increase this to at least 15% within five years and then to 25% within ten years from the date of listing. If a company has 15% or more public shareholding at the time of listing, it must increase this to at least 25% within five years from the date of listing.

The proposed extended timelines may also be made applicable to listed entities that are yet to comply with the MPS, as per the existing timelines applicable to them; and the ones that are non-compliant with the existing MPS requirements and are likely to get more time to achieve MPS upon notification of extended timelines. Sebi believes that for large-size companies, the revised MPO will still be large enough to provide sufficient stock to the market, including retail investors, and facilitate liquidity.

According to Capitaline data, 27 listed companies of the BSE and NSE 500 universe have promoters holding more than the 75% ceiling prescribed by Sebi—18 of these are government-owned and the remaining nine are private sector firms.

Furthermore, anchor allotment in IPOs has been widened to include insurers & pension funds, with a higher quota (40%). Earlier, it was available only to domestic mutual funds. Now, life insurance companies and pension funds have also been included. Of the revised anchor quota, one-third will still be reserved for domestic mutual funds, while the remaining will be reserved for insurance companies and pension funds. If the reserved portion for insurers and pension funds is undersubscribed, the unutilised quota will be reallocated to mutual funds.