Regulator plans to relax public issue norms

The markets regulator on Friday proposed to reduce the size of large initial public offerings (IPOs), a move that would make it easier for state-run Life Insurance Corp. of India to comply with initial share sale rules.

In a consultation paper, the Securities and Exchange Board of India (Sebi) proposed that companies with a post-issue capital of above ₹10,000 crore will be required to initially sell only 5% of the company to the public.

The proposal, if implemented, may help the upcoming IPO of the country’s largest insurer LIC since the value of the shares on offer in the IPO by the insurance behemoth may be too high for investors to absorb.

It may also take much longer for LIC to comply with the 25% minimum float norm since even a 5% sale would be larger than most share sales to the public in India. All listed companies are required to comply with the minimum public shareholding requirement of 25% within three years of their listing and those launching an IPO need to sell at least 10% of the shares outstanding in the IPO initially.

“The securities market, including the market for initial public offerings (IPOs), is dynamic and needs to keep pace with the evolving market conditions. At present, every firm needs to comply with the minimum offer to the public requirement of at least 10% of post-issue paid-up capital. This may be cumbersome for large issuers,” said the Sebi discussion paper.

Sebi has sought comments from interested parties till December 7 on the discussion paper. If the proposal is accepted, Sebi has suggested that the minimum offer and the allotment to the public in terms of an offer document shall be at least 25% for each class of equity shares if the post-issue capital of the company is ₹1,600 crore.

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