SEBI amends rules for Utilization of IPO proceeds

SEBI has notified amendments to Issue of Capital and Disclosure Requirements, 2018 (ICDR) leading to tightening of rules for Initial Public Offer (IPO).

Key amendments are as follows –

• A new sub-regulation 2A has been inserted which provides that where objects of the issue have been set out in the draft offer document and the issuer company has not identified acquisition or investment target, the amount for such objects and general corporate purpose shall not exceed 35% of the amount being raised by the issuer.
• Shareholders with more than 20 per cent stake in a company before the Initial Public Offer (IPO) will be able to sell up to 50 percent of their shares in Offer-for-Sale (OFS)
• Shareholders with less than 20 per cent stake will be able to sell only 10 per cent of their shares in OFS.
• For anchor investors lock-in period of 30 days will continue for 50 per cent of the portion allocated to them and for the remaining portion, lock-in period of 90 days from the date of allotment will be applicable for all issues opening on or after April 01, 2022.
• In an issue made through book building process, the allocation in the non-institutional investor’s category shall be as follows-:
  • 1/3rd of the portion available to non-institutional investors shall be reserved for applicants with application size of more than Rs. 2 lakh and up to Rs. 10 lakh.
  • 2) 2/3rd of the portion available to non-institutional investors shall be reserved for applicants with application size of more than Rs. 10 lakh.
  • 3) The cap on the price band shall be at least 105% of the floor price and the coupon rate in case of convertible debt instruments shall be less than or equal to 102% of the floor price.
• Since allotment to a non-institutional investor cannot be less than the minimum application size, subject to availability of shares, the remaining shares, if any, shall be allotted on a proportionate basis.
• SEBI permits credit rating agencies (‘CRAs’) registered with SEBI to act as a monitoring agency instead of scheduled commercial banks and public financial institutions and such monitoring will continue till 100% utilization of the issue proceeds which is presently at 95%.

The amended rules shall be effective immediately.

Kriti Mehta, Audit Associate, SW India