Sebi eases IPO, OFS norms to boost markets

FE Team | Published: June 20, 2014 00:00:00 | Updated: November 30, 2026 06:01:00

MUMBAI, June 19 (Business Standard): Capital market regulator Securities and Exchange Board of India (Sebi) today made a slew of announcements--- mainly in the primary market space--- to infuse life into the moribund initial public offering (IPO) market.
To encourage more promoters to tap the IPO market, Sebi has relaxed the minimum dilution criteria. Companies can now sell a minimum 25 per cent stake or Rs 4.0 billion, whichever is more, in public offerings.
Earlier, companies with valuations of less than Rs 40 billion had to sell minimum 25 per cent stake in IPO. While, bigger companies are allowed to sell just 10 per cent and are were given three years time to sell another 15 per cent. This led to artificial manipulation in valuations by promoters to ensure that they had to dilute less.
Another major decision taken by the Sebi board, which met today in Delhi, was to extend the 25 per cent minimum public shareholding requirement to state-owned companies. Previously, the minimum public float requirement for public sector undertakings (PSUs) was just 10 per cent. The move will impact as much as 36 PSUs, where the government currently owns more than 75 per cent. The biggest dilution will have to be made in Coal India. Sebi has said that the government will be given a three year time frame to achieve 25 per cent minimum public shareholding (MPS).
The deadline for private companies to have at least 25 per cent MPS had ended in June 2013.
Sebi has also extended the ambit of the popular offer for sale (OFS) mechanism for share sales. The regulator has said that top 200 companies will now be allowed to divest using the OFS route. Earlier only top 100 companies were allowed to use the OFS route for share sales other than those wanting to achieve MPS requirement.
To help retail investors, the regulator has said that 10 per cent reservations for retail investors will be compulsory in OFS and has also permitted differential pricing to provide discount for retail investors.
Also, non-promoter entities-those holding more than 10 per cent stake-will also be allowed to divest through the OFS route. Earlier, only promoters were allowed to dilute using this route.
Sebi has also allowed India Inc to buy shares from the secondary market, with certain riders, to reward their employees with stock options. Last year, Sebi had banned secondary market purchases for issuing empoyee stock option plan (ESOP) and hence, companies had to issue fresh equity. The latest move will help companies with low promoter holding to issue ESOP without the fear of losing control.
Sebi today also said that entities regulated by other domestic regulators can have access to KYC data of stock market investors. The is a move towards achieving single KYC across financial sector, said a Sebi official.
Also, going ahead all research analysts will have to register with Sebi before they can make stock recommendations. The disclosure requirement for research analysts will be much stricter to avoid conflict of interest.