SEBI eases IPO rules as India readies its biggest offering

 SEBI eases IPO rules as India readies its biggest offering

SEBI building in Mumbai. Photo credit: Wikimedia Commons

India’s capital markets regulator has relaxed initial public offering rules for large companies, a move that will help the government sell shares in the nation’s top insurer via possibly the country’s biggest IPO.

The Securities and Exchange Board of India (SEBI) reduced the minimum IPO size and extended the time frame for companies to meet the minimum public shareholding norms.

The decision was part of SEBI’s quarterly board meeting held in New Delhi on Wednesday. The meeting was addressed, among others, by finance minister Nirmala Sitharaman.

SEBI said a company with a post-IPO market capitalisation of Rs 1 trillion will be required to dilute shares worth Rs 10,000 crore, plus a 5% incremental amount on the amount exceeding Rs 1 trillion (about $13.75 billion).

Under current rules, companies are required to dilute at least 10% stake if its post-issue market capitalisation exceeds Rs 4,000 crore.

For instance, a company with a post-issue market capitalisation of Rs 1.5 trillion would be required to sell shares worth Rs 15,000 crore in an IPO under the current regulations.

Under the amended policy framework, a company with a post-issue market capitalisation would be required to issue, sell or dilute shares worth Rs 12,500 crore. This gives it room for more stake dilution in the future.

The move would make it easier for the government to list state-run Life Insurance Corporation (LIC) of India, the country’s biggest insurer. LIC’s market value is pegged at Rs 9-10 trillion, as per various market estimates.

LIC’s much-anticipated offering will not only be the biggest-ever IPO in India, but it will also help the government meet its divestment target of Rs 1.75 trillion for the next financial year that begins in April to bridge the fiscal deficit.

SEBI also tweaked the time duration to meet minimum public shareholding norms for such companies. At present, companies are required to meet a minimum public float of 25% within three years from the date of listing.

The amendment will now allow large companies to achieve a minimum public float of 10% within two years from the listing date, and 25% within five years from listing.

Ankit Doshi

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