The Securities and Exchange Board of India (SEBI) has introduced new norms for companies to launch their initial public offerings (IPOs). The new norms would reduce the time taken between the share sale on the primary market and listing on the secondary market. The move would enhance the reach of retail investors in application for the IPOs and reduce costs. The norms would come into effect from January 2016.
SEBI Board took various decisions making the IPO process easier. Highlights of the decisions taken are as follows:
1. Applications Supported by Blocked Amount (ASBA) would be made mandatory for all categories of investors. This means there would be no need to issue cheques that were earlier required for filing an application. This implies simplification of the entire application process where funds are not debited from the account but only blocked in the account until the relevant number of shares are credited (equal amount of money is debited) and remaining amount is unblocked.
2. The listing process which now takes 12 days’ time would be reduced to only 6 days meaning investors would be able to see their shares listed on the exchanges in 6 days’ time after the IPO application process is over. Issuers would have faster access to the capital raised and investors would have early liquidity in this process.
3. Depository participants and RTAs (registrar and transfer agents) would also be able to accept IPO applications both in physical form and electronic form. Right now, only brokers and exchanges can accept applications. This would help in expanding the reach of IPOs for investors.
4. The requirement of market capitalization of public shareholding of the issuer for Fast Track Issues (FTI) would be reduced to Rs.10 billion in case of Follow on public offering (FPO) and Rs.2.50 billion in case of a rights issue. This would help more listed companies to raise further capital using the fast track route.
5. Existing promoters would be re-classified as public in case a company becomes professionally managed — that is, it does not have any identifiable promoter. These are companies where no entity holds more than 1 per cent, while fund houses, banks, financial institutions, insurers, FPIs and the like hold up to 10 per cent.
Re-classification of promoters as public shareholders was taken up by SEBI after the founders of Infosys wanted to re-classify themselves as public shareholders after handing over the day-to-day operations of the company to a professional management in October 2014. The outgoing promoter would not be allowed to hold more than 10 per cent stake in the company and shareholder approval would be required if the outgoing promoter is to be retained as a key management person (MD/CEO/CFO/COO/Company Secretary) of the company for up to a maximum of three years.