SEBI Proposes Greater Flexibility in Public Shareholding, Offer Norms to Ease Fund-Raising
The Securities and Exchange Board of India (SEBI) has proposed new measures to increase flexibility in minimum public shareholding (MPS) and minimum public offer (MPO) requirements for companies planning to list.
The move, aimed at simplifying fundraising for issuers in India, was outlined in a consultation paper released on August 18.
Revised Thresholds for Market Capitalisation
SEBI has suggested changes in the post-issue market capitalisation (m-cap) thresholds. The proposed new buckets are:
Rs 4,000 crore to Rs 50,000 crore
Rs 50,000 crore to Rs 1 lakh crore
Rs 1,00,000 crore to Rs 5 lakh crore
Above Rs 5 lakh crore
Currently, the thresholds are set at Rs 4,000 crore, Rs 1 lakh crore, and above Rs 1 lakh crore. The regulator has also proposed extending the timelines for companies to comply with MPS norms.
Extended Timelines for MPS Compliance
According to the consultation paper, companies with a post-issue market cap above Rs 50,000 crore but not exceeding Rs 1,00,000 crore may get five years instead of the current three years to meet the MPS requirement of 25%.
The proposal fixes the compliance period at five years for achieving 15% shareholding and 10 years for reaching 25% post-listing.
For companies with post-issue m-cap above Rs 1,00,000 crore but less than Rs 5,00,000 crore, the minimum issue size will be Rs 6,250 crore plus 2.75% of the post-issue capital.
Here too, if public shareholding is less than 15% at the time of listing, 15% must be achieved within five years and 25% within 10 years. If it is already above 15%, the 25% requirement must be met within five years.
For companies above Rs 5,00,000 crore in post-issue m-cap, the minimum dilution would be Rs 15,000 crore plus at least 1% of post-issue capital, subject to a minimum dilution of 2.5%. The compliance timeline follows the same structure as the previous category.
Proposed Changes in Minimum Public Offer
SEBI has also sought feedback on reducing the MPO for larger companies. Currently, under Securities Contract Regulations Rules (SCRR), issuers with a post-issue market cap above Rs 1,00,000 crore are required to ensure an MPO of Rs 5,000 crore and at least 5% of post-issue capital.
They must also raise their public shareholding to 10% within two years and 25% within five years of listing.
However, SEBI noted that such requirements can pose challenges for large issuers, as the market may not be able to absorb substantial equity dilution immediately after an IPO. This, in turn, can affect share prices irrespective of a company’s financial position.
Industry Response to the Proposals
Industry experts welcomed the proposed changes. Arka Mookerjee, Partner at JSA Advocates & Solicitors, said, “For very large market cap companies, this is a welcome proposal as this will reduce requirements to seek ad hoc or one-time SEBI relaxations.”
Moneycontrol had earlier reported that SEBI might allow IPOs of large companies with lower stake dilution.
The consultation paper, based on inputs from SEBI’s primary market advisory panel and internal discussions, now formally suggests these relaxations for issuers with a post-issue market cap above Rs 50,000 crore.
Challenges for Large Issuers
The regulator highlighted that large companies often face hurdles in meeting current MPS requirements.
Issuers that dilute only 5–10% of their capital at IPO are later required to dilute an additional 15–20% within five years, creating pressure on promoters and affecting shareholding stability.
The paper also noted that bigger and more profitable companies, with large cash reserves and limited capital-raising needs, face difficulty in meeting these obligations. Public Sector Undertakings (PSUs) also struggle with compliance under the existing timelines.
Justification for Reforms
SEBI explained that as IPO sizes grow year after year, flexibility in issue size and public shareholding timelines is essential. Without changes, large issuers may be discouraged from listing in India, thereby limiting investment opportunities for domestic investors.
The regulator has proposed amending the Securities Contracts (Regulation) Rules, 1957 (SCRR) to accommodate these changes. Any amendment will require approval from the Ministry of Finance. SEBI has invited public comments on the proposals until September 8.
Adjustments in Thresholds
The consultation paper also suggested bifurcating the existing Rs 4,000 crore to Rs 1,00,000 crore category into two—Rs 4,000 crore to Rs 50,000 crore and Rs 50,000 crore to Rs 1,00,000 crore. Other thresholds remain unchanged.
