“Raising funds for undisclosed acquisitions leads to some amount of ambiguity” IPO commodities,” SEBI said in a discussion paper on Tuesday. The regulator has sought comments of stakeholders on the proposals by November 30. This paper comes in the wake of startups such as blockbuster IPOs.
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“It is proposed to set a combined limit of up to 35% of the size of the new issue for deployment of inorganic development initiatives and GCPs (General Corporate Purposes) on such items where the intended acquisition/strategic investment is unknown in the objectives of the proposal,” said Sebi. The paper said.
Most proposal documents cite acquisition plans without naming potential targets. SEBI noted that unlike traditional manufacturing companies, many startups are asset-light and do not require funds for fixed assets and capital expenditure. Their development comes from acquiring new customers and technologies.
“Acquisitions by new-age technology companies are going to be a growing trend and it is imperative for them to have cash ready to move quickly in line with market conditions,” said Ausang Shukla, Managing Director and Co-Head of Investment Banking. , ambit. “a Cap This may limit their options to make such acquisitions in tough market conditions, which may be the ideal time for such acquisitions.
As per SEBI regulations, the issuer has to state the objectives of the IPO in the offer document.
“Public market investors will evaluate the capability of the management teams and track record of acquisitions before subscribing,” Shukla said. “In addition, the need for monitoring GCPs (general corporate objectives) and specific M&A initiatives will ensure proper checks and balances for companies.”
Sebi said that no limit would be applicable if the proposed acquisition has been identified and specific disclosure of such investment is made in the offer document.
Paper also proposes increase in lock-in for anchor investors start up IPO from current 30 days to 90 days. SEBI believes that this will give more confidence to other investors.
Investment bankers said that many startups opt for IPOs primarily to give liquidity to early stage investors.
Ambit’s Shukla said, “Most shareholders have mutual arrangements to manage the timing and amount of OFS (Offer for Sale). “Introducing incremental restrictions on this may discourage large investors from considering IPOs and complicate shareholders’ arrangements.”
The Expert Advisory Committee of the regulator was of the view that instead of extending the lock-in period for all anchor investors, at least 50% of the anchor book should be given to investors who can agree to a tenure of 90 days or more. paper.
At present, companies can allocate 60% of the share for Qualified Institutional Buyers (QIBs) to anchor investors on a discretionary basis, of which one-third is reserved for mutual funds.
Allotment to anchor investors is done one day before the date of issue.
The regulator has also proposed that the earnings released under the GCP should be monitored. The utilization of the GCP amount by the issuing company may be required to be disclosed in the quarterly monitoring agency report.
Currently, companies are not required to disclose any specific item regarding the deployment of GCP amount and its use is not included in the monitoring agency’s report.
“In view of the sheer size of the IPO, there is a need to provide adequate information regarding utilization and monitoring of such a large portion of the issue proceeds earmarked under GCP,” SEBI said.
The regulator has also proposed that in IPOs of companies where there are no identifiable promoters, disinvestment of stake by significant shareholders (holding more than 20%) should be done at 50% of their pre-issue holding.
SEBI said that for such significant shareholders, including private equity funds, who are selling through OFS in the IPO, their remaining post-issue shareholding will be locked in for a period of six months from the date of allotment in the IPO.