According to the new standards, the large shareholders of the company (with more than 20% of the capital) cannot sell more than 50% of their stake within the framework of a sale offer (OFS). This becomes relevant because in startups, private equity investors are big shareholders and there is no identifiable promoter. The current standards allow these large shareholders to exit completely.
To improve disclosure standards, companies can only allocate 25% of an issue’s proceeds to acquisitions when a target has not been identified. The total allocation for unidentified acquisition and “general corporate purpose” cannot exceed 35%. Issuers will need to appoint a credit rating agency to monitor and report on the end use of the funds.
At the board meeting on Tuesday, Sebi said flagship investors will need to hold half of their holdings for at least 90 days in addition to the current requirement to stay invested for a month. Shares of companies like Zomato and Paytm fell a month after their listing after the sale of key investors at the end of the lock-up period.
Non-institutional investors will now be divided into two categories. One third of the issue will be reserved for those who invest between Rs 2 lakh and Rs 10 lakh and the remaining two thirds will be for those who invest Rs 10 lakh and more in the issue. This measure will prevent small investors from being squeezed out. To make sure that companies don’t get too ambitious in their pricing, Sebi asked them to have a top price range that is at least 105% higher.
Sebi chairman Ajay Tyagi claimed the regulator had no intention of controlling IPO prices in any way. “Price discovery is market driven and that’s how it works globally as well,” he said at a press conference after the board meeting. The regulator also approved the introduction of Special Situation Fund (SSF) which will invest only in bad debts.
SSFs will be introduced as a sub-category in Category 1 of Alternative Investment Funds (AIFs). This move will greatly help the operations of the National Asset Reconstruction Company, which will buy out much of the bad debts of public sector banks.
To improve corporate governance in listed companies, the regulator banned them from appointing directors who were previously rejected by shareholders, without the express approval of shareholders. In his feud with PNB Housing over the valuation of shares from a preferred issue to a new owner, Sebi has said that the preferred issues will require independent valuation when they result in a change of ownership.