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SEBI Board approves Changes to IPOs & Preferential Issues

On December 28, 2021, the board of the Securities and Exchange Board of India (SEBI) met in Mumbai, Maharashtra under the Chairmanship of Ajay Tyagi. The Part-Time Members joined the meeting through video conferencing. Following decisions have been taken during the meeting.

1.Amendments  to  SEBI  ICDR Regulations, 2018

The  Board  approved  the  proposal  to  amend  various  aspects of  regulatory framework  under  the  SEBI  (Issue  of  Capital  and  Disclosure  Requirements) Regulations, 2018 (ICDR Regulations) and consequential amendment to SEBI (Listing  Obligations  and  Disclosure  Requirements)  Regulations,  2015,  as applicable.

  • These will be based upon the public consultation   process   on   the   proposals recommended by the Primary Market Advisory Committee (PMAC).

The SEBI board has recommended a set of changes that will be applicable for the Draft Red Herring Prospectus (DRHP). Some of the key amendments are as follows:

Initial Public Offerings (IPOs):

i.A 35% spending cap from the total amount being raised in the IPO on future inorganic growth and general corporate purpose. The 35% cap will be applicable when the company has not identified any acquisition or investment target.

ii.The amount spent on objects where the company has not identified acquisition or investment target will be limited at 25% of the amount being raised.

iii.Conditions for offer for Sale (OFS) to public in an IPO where DRHP is filed by issuer without track record i.e. under Regulation 6(2) of ICDR Regulations, 2018:

  • Shares offered for sale by selling shareholders, individually or with persons acting in concert, holding more than 20% of pre-issue shareholding of the issuer, shall not exceed more than 50% of their pre-issue shareholding.
  • Shares offered for sale by selling shareholders, individually or with persons acting in concert, holding less than 20% of pre-issue shareholding of the issuer, shall not exceed more than 10% of preissue shareholding of the issuer.

iv.The existing lock in of 30 days shall continue for 50% of the portion allocated to anchor investor and for the remaining portion, lock in of 90 days from the date of allotment shall be applicable for all issues opening on or after April 01, 2022.

v.The minimum price band of at least 105% of the floor price will also come into effect.

vi.Credit  Rating  Agency  (CRAs) registered with the board are  permitted to act as  Monitoring  Agency  instead  of Scheduled   Commercial   Banks   (SCBs)  and Public   Financial Institutions (PFI).

Changes to Preferential Allotment:

i.In the event of change of control in a company, independent directors will have to provide reasoned recommendations and vote details.

ii.In preferential allotment, the lock-in period for promoters holding up to 20% of the post-issue paid up capital will be reduced to 18 months from the current 3 years.

  • For promoters holding above 20% paid-up capital, the lock-in period is reduced to 6 months from the current 1 year.

iii.For non-promoters, the locked-in period for allotments reduced from 1 year to 6 months.

iii.Share swap backed by a valuation report allowed as consideration for a preferential issue.

2.Appointment of persons who had failed to get elected as Directors

The Board approved a proposal to introduce provisions in the SEBI   (Listing   Obligations   and   Disclosure Requirements) Regulations, 2015 (LODR Regulations).

  • Under this, appointment or re-appointment of persons who fail to get elected as directors, including as Whole-time directors or Managing Directors or Managers by the shareholders at a general meeting, will be done only with the prior approval of the shareholders.

3.Amendment to SEBI  (Alternative  Investment  Funds) Regulations,  2012

The Board approved amendment to SEBI (Alternative Investment Funds-AIF) Regulations, 2012, to introduce Special Situation Funds (SSF), a sub-category under Category I AIF, which will invest only in stressed assets.

Key features of the regulatory framework for SSF:

i.Exemptions from investment  concentration  norm  in  a  single  investee company.

ii.No  restriction  on  investing  their  investible  funds  in  unlisted  or  listed securities of the investee company.

iii.Minimum investment by an investor is Rs 10 crore and Rs 5 crore in case of an accredited investor.

iv.Minimum corpus of Rs 100 crore

v.Initial and continuous due diligence requirements mandated by RBI for ARCs’ (Asset Reconstruction Companies) investors  will be applicable to SSFs  while  acquiring stressed  loans  in  terms  of  Reserve  Bank  of  India  (Transfer  of  Loan Exposures) Directions, 2021

4.The  Board  approved  amendment  to  MF  (Mutual Fund) Regulations  to  mandate  MF  schemes  to  follow  Indian  Accounting  Standard  (IND  AS)  from Financial   Year 2023-24   onwards.

5.The  Board  also approved  amendments  to  the  SEBI  {KYC  (Know  Your  Client) Registration Agency} Regulations, 2011 towards enhancing the role of KYC Registration Agencies (KRAs).

  • As per  the  approved  amendment,  KRAs  have  been  made  responsible  to carry  out  independent  validation  of  the  KYC  records  uploaded  onto  their system by the Registered Intermediary (RI), among others.

6.The Board approved amendments to the SEBI (Stock Brokers) Regulations, 1992 and SEBI (Depository and Participants) Regulations, 2018, to provide for revised Networth requirement for Trading Members (TMs), Self-Clearing Members   (SCMs),   Clearing   Members   (CMs),   Professional   Clearing Members  (PCMs),  Depository  Participants  (DPs)  and  Deposit  &  Fees requirement for members in Electronic Gold Receipt (EGR) Segment.

7.The Board approved the proposal to amend the SEBI  (Listing  Obligations  and  Disclosure Requirements)  Regulations, 2015 for issuance of securities in dematerialized form in case of investor requests for issue  of duplicate  shares  etc.

  • This move will improve ease, convenience and safety of transactions for investors.

8.The  Board  considered and approved  the  amendments  to  the  SEBI  (Foreign Portfolio  Investors)  Regulations,  2019  to  enable  SEBI  to  generate  unique registration  numbers  of  FPIs (Foreign Portfolio Investors) on  receiving  the  basic  details  of  the applicants seeking FPI registration from SEBI registered Depositories.

9. It was also proposed  to amend the  SEBI   (Settlement   Proceedings) Regulations,  2018  (Settlement  Regulations)  which came  into  force  with  effect  from January  1,  2019.

  • Time-period for filing a settlement application rationalized to 60 days from the date of receipt of the show cause notice or a supplementary notice, whichever is later.
  • Time-period for submission of Revised Settlement Terms Form, after the Internal Committee (IC), rationalized to 15 days from the date of the IC meeting.

Recent Related News:

i.SEBI has levied a monetary penalty of Rs 1 lakh on Chandan Gupta, an employee of Titan Company Limited for disclosure lapses, in violating the insider trading norms.

ii.SEBI reduced the minimum application value of real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) to the range of Rs 10,000-15,000 from earlier requirement of Rs 50,000 for REITs and Rs 1 lakh for InvITs.

About Securities and Exchange Board of India (SEBI):

Establishment– 1992
Headquarter– Mumbai, Maharashtra

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