SEBI (Securities and Exchange Board of India) has announced major relaxations in IPO regulations for very large companies. The changes are aimed at reducing equity dilution pressure, easing the burden of mandatory public shareholding (MPS) requirements, and making it simpler for large firms to go public. These new norms also strengthen investor protections while ensuring orderly listing processes.
What’s Changing: Key Relaxations by SEBI
| Rule / Norm | Old Requirement | Relaxed / Proposed Change |
|---|---|---|
| Minimum Public Offer (MPO) / Minimum Offer Size in IPO | For firms with post-issue market cap > ₹5 lakh crore: at least 5% of paid-up share capital to be offered in IPO. | SEBI proposes to lower this to around 2.5% if post-IPO market cap is above ₹5 trillion (~₹5 lakh crore). |
| Timelines for Minimum Public Shareholding (MPS) | Large firms had to meet 25% MPS within five years post-IPO. | The timeline will be extended for exceptionally large firms: up to 10 years for those with market cap exceeding ₹1 trillion. For slightly smaller large firms, relaxed deadlines like 5 years. |
| Flexibility in Public Offering Size / Dilution | Mandatory minimum dilution / share offer sizes could be steep for large companies and difficult for markets to absorb. | New rules allow issuers to list with smaller floated shares initially and increase public holdings gradually under the extended timelines, reducing upfront dilution. |
| Retail Investor Quota & Anchor Investor Rules | Retail quota (35%) & anchor investor norms applied across IPOs regardless of size. Related party disclosures / valuations also under scrutiny. | SEBI has retained the 35% retail quota for large IPOs. Anchor investor allocation rules being tweaked (more flexibility). Merchant bankers told to use more realistic valuations. |
Why SEBI Made These Changes
- Market Absorption Concerns: Very large offerings (5%+ float) create huge share supply, which markets sometimes struggle to absorb, leading to volatility or under-subscriptions.
- Dilution Pressure on Existing Shareholders: Large dilutions upfront can hurt existing shareholders by depressing prices or reducing control. Relaxing IPO size helps reduce this burden.
- Encouraging More IPOs: With high thresholds and constraints, some giant firms delay IPOs or avoid going public domestically. The relaxations aim to make these IPOs more appealing.
- International Investor Access & Ease of Doing Business: Along with IPO relaxations, SEBI is simplifying some foreign investor entry norms to attract more capital.
Potential Risks & Investor-Concerns
- Lower Float = Liquidity Risk: Smaller initial public offer sizes may lead to lower trading liquidity and higher volatility. Investors in large IPOs often value sufficient free float for smooth transaction ability.
- Price Discovery Pressure: Smaller offers can skew valuation dynamics; if too few shares are offered, market may misprice risk or expect sharp corrections.
- Extended Deadlines = Uncertainty: While timelines for public shareholding norms are being stretched, ensuring compliance over 10 years must be enforced to avoid perpetual under-compliance.
- Retail Protection: Ensuring that smaller investors are not disadvantaged; disclosure norms, anchor investor behavior, and pricing transparency will matter a lot. SEBI seems aware and has retained retail quotas and emphasized realistic valuations. India Today
What This Means for Companies & Investors
- For Large Companies: They can plan IPOs with less dilution upfront, making listing more palatable. Better for companies which already have strong valuations and do not necessarily need large fresh capital.
- For Investors: Opportunities to invest in large companies via IPOs may increase; however, they may need to be cautious about how much float is available and trading volume.
- For Retail Investors: Retained quotas and anchor investor reforms aim to protect retail participation and pricing transparency.
- For Market Sentiment & IPO Pipeline: Likely to boost IPO activity among big firms in sectors like tech, infra, or consumer internet who were waiting on regulations to ease.
Conclusion
SEBI’s relaxations for IPOs by large companies reflect a balancing act: reduce upfront burdens and dilution for major issuers, while maintaining protections for investors and the market’s orderly functioning. By halving minimum offer sizes (for very large firms), extending timelines for public shareholding, and retaining key investor-friendly rules, SEBI is signaling its intent to refresh India’s IPO market. Whether these changes achieve the intended surge in major IPOs—and whether they are implemented smoothly—will define how effective this reform wave is in the long run.
