Sebi clears slew of amendments to regulations; tightens norms for utilisation of IPO proceeds

Sebi on Tuesday approved a bunch of changes to its regulations, including the tightening of norms around utilisation of the proceeds from an initial public offering (IPO), in a bid to protect retail investors and curb volatility in share prices post listing.

Some of the other amendments the markets regulator made are around the lock-in period for anchor investors and the reappointment of a person as managing director and whole-time director who was earlier rejected by the shareholders.

As per the amended rules, a company raising funds through an IPO shall not use more than 25 per cent of the proceeds for acquisitions and items that are not identified and laid out in its offer documents.

“Considering that companies have been coming up with unidentified usages to raise funds in a bullish market, this is a welcome move,” said Deepak Jasani, Head of Retail Research, HDFC Securities.

Geetanjali Kedia, Head - Primary Markets, S P Tulsian Investment Advisers also acknowledged it as a pragmatic move since it will help the incoming investors to know what the proceeds will be used for.

The existing lock-in of 30 days shall continue for 50 per cent of the holdings of anchor investors while for the remaining portion the lock-in of 90 days from the date of allotment shall be applicable for all issues opening on or after April 1, 2022, Sebi stated in its press release.

“The anchor investors will have to be very cautious in terms of picking IPOs for long-term bets as they won’t be able to cash in just for listing or short-term gains,” said Gaurav Garg, Vice-president, Strategy & Operations, CapitalVia Global Research.

This amendment will also curb volatility in share price post listing.

“In Paytm’s case, we saw that when the anchor investors came for sale there was a heavy selling pressure and the price didn’t recover from there. This is a positive move and will help in better price discovery even for the IPO and post listing,” Kedia said.

The amendments also included a revision in the allocation methodology for the Non-Institutional Investor (NII) category: One-third of the portion earmarked for NIIs shall be reserved for applicants with an application size of more than two lakh rupees and up to ten lakh rupees; and the other two-thirds of the portion will be available to NIIs with an application size of more than ten lakh rupees.

“NIIs investing in the bracket of Rs 2-10 lakh will benefit from this as they will have a higher chance of allocation,” said Gaurav Garg, VP - Strategy & Operations, CapitalVia Global Research.

Sebi also amended provisions relating to the appointment or re-appointment of persons who fail to get elected as directors.

According to the new rule, those people who were earlier rejected by the shareholders at a general meeting shall be re-appointed as whole-time directors or managing directors or managers, only with the prior approval of the shareholders.

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