SEBI Tightens IPO Rules, Introduces Pre-Filing

The Securities and Exchange Board of India has said that the share price for the initial public offering should be based on past fund raising.

As part of its board meeting, the market watchdog noted that the IPO issuers will now have to disclose price per share based on transactions done 18 months prior to issue.

Moreover, it also approved the proposal to introduce pre-filing of offer document as an optional alternative mechanism for IPOs.

It also proposed to reduce the mutual fund payouts to be completed in three working days, from the current 10 days.

The changes came as part of several decisions taken during SEBI's board meeting.

Here are all the key decisions taken by SEBI in its meeting today:

The SEBI board said that online bond platform providers have to register as stock brokers with SEBI.

• It will reduce face value of listed debt securities.

• Disclosure of key performance indicators and price per share of issuers based on past transaction during the past 18 months.

• Modification in framework for offer for sale. Cooling-off period of 12 weeks reduced to range of 2-12 months.

• CRAs made monitoring agencies for utilisation of issue proceeds via preferential issues and QIP.

• Modifies insider trading guidelines to include MF units.

The SEBI board approved amendment to facilitate faster payment of redemptions and dividends by mutual funds.

• SEBI board proposes that mutual funds pay out redemption in three working days vs the current 10 days.

• It also proposes that mutual funds pay out dividends in seven working days vs the current 15 days.

The SEBI board approved proposal to introduce pre-filing of offer document as an optional alternative mechanism for IPOs on the main board of stock exchanges.

• Pre-filling mechanism allows issuers to carry out limited interaction without making sensitive information public.

• SEBI’s initial observations to be made available to investors for at least 21 days.

• Existing mechanism of processing offer document to continue in addition to alternative.

The SEBI board approved alternative method for appointment of independent directors for their first term.

• Under alternative method, if special resolution for appointment does not get requisite majority, threshold for ordinary resolution and majority of minority shareholders can be tested.

• If the resolution crosses the alternative thresholds in the same voting process, the appointment can be deemed as approved by shareholders.

• The same threshold will be applicable for removal of independent director that is appointed under this mechanism.

The SEBI board approved amendments to regulations governing REITs.

Minimum holding requirement of REIT sponsors and sponsor groups of total outstanding units of REIT on post-initial offer basis reduced to 15% from 25%.

The SEBI board approved changes to rules that govern Offer For Sale mechanism.

• Any investor wishing to avail of Offer For Sale mechanism can do so if they offer shares of at least Rs 25 crore.

• Currently, non-promoter shareholders holding at least 10% of share capital offering shares worth at least Rs 25 crore can avail of OFS route.

• Cooling-off period of +/- 12 weeks for OFS has been reduced to range of +/- 2 weeks to +/- 12 weeks.

• Retail investors have been allowed to bid for the unsubscribed portion of non-retail segment.

The SEBI board says IPO issuers must disclose key performance indicators and price per share based on past fund-raising.

• IPO issuers will now have to disclose price per share based on transactions done in 18 months prior to issue.

• If no transactions are done in 18 months, details of last five primary or secondary transactions not older than three years from issue date will be sought.

• Issuer companies must also disclose weighted average cost of acquisition. The IPO floor price, cap must be displayed as multiple of weighted average cost of acquisition.

• Issuer companies’ committee of independent directors shall recommend that price band of issue is justified based on qualitative factors.