What are the new guidelines imposed on IPOs by SEBI? |Teji Mandi Explains

These new rules are already in practice, and retail investors are expected to benefit from them.

Teji MandiUpdated: Tuesday, December 13, 2022, 07:10 PM IST
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What are the new guidelines imposed on IPOs by SEBI? |Teji Mandi Explains | Photo credit: Pixabay

The IPO buzz is back. This week, three new IPOs will raise over Rs 1,857 crores. Last year, we experienced some failed IPOs. Hence, SEBI has imposed stricter guidelines on IPO listings.

What’s happening?

The year 2021 was a year of IPOs. All in all, 64 IPOs were listed, which collectively raised Rs 1.81 lakh crores. By the end of 2021 came the Paytm IPO, which was expected to be a blockbuster by many, but it flopped in its debut. Many investors lost faith and questioned the company's lack of profits and lofty valuations.

As of 6th December 2022, Rs 55,101 crores has been raised through 32 IPOs this year. Three more IPOs are in line this week. So, let’s throw some light upon the changes made by SEBI that these companies have to follow to get listed.

Detailed disclosure about the objective of the issue

When a company comes up with a fresh issue, they have to specify the objective of raising the fund in its red herring prospectus. Previously, companies coming up with an IPO used to take benefit from IPO buzz and did not disclose adequate information about how the company will use the accumulated funds in the future. SEBI has revised the rule by stating that the company coming up with an IPO must clearly specify acquisition or investment targets. If a company does not specify the targets, the amount reserved for acquisition or investment cannot exceed 25% of the total raised amount.

Lock in period for anchor investors is extended

Previously, the lock-in period for anchor investors used to be 30 days, because of which we saw a considerable dip in the share price after the lock-in period was over. Now SEBI has made revisions to the rule where anchor investors can sell only 50% of their holdings after 30 days, and the rest 50% can be sold after 90 days.

NBFC financing cap on HNIs

High Net Investors, or HNIs, used to take huge loans from NBFCs to apply for IPOs. But now, IPO financing has a ceiling of Rs 1 crore. This means that an NBFC cannot offer a loan of more than Rs 1 crore per application.

Separate sub-categories within the NII category

Non-institutional investors will now have a sub-category in which one-third of the portion of NII’s will be reserved for applications ranging from Rs 2 lakhs to Rs 10 lakhs.

Price band amendment

When it comes to book-built offers, the price band used to be quite narrow. For example, the price band of Nykaa was Rs 1,085 to Rs 1,125 per share. But now, SEBI has asked to keep the upper price band of at least 105% of the lower price band. This will help investors select a proper price to apply for the IPO.

What’s next?

These new rules are already in practice, and retail investors are expected to benefit from them.

The companies mentioned in the article are for informational purposes. This is not investment advice.

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