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SEBI For IPO Reform, Might Remove Barriers to Lower IPO Dilution


SEBI will rejig IPO regulations because the current rules are likely to get gamed, said the SEBI Chief UK Sinha. A quick background:

  • Current rules mean that if you are valued at less than Rs. 4,000 cr. , the company must divest 25% minimum in the IPO
  • If you’re valued at 4000 cr. or more you can sell only 10% of your shares in the IPO, and you are given some time to go to 25% (which is the minimum public shareholding)
  • Recent IPOs – in fact, most definitely a reference to Just Dial, which had a Rs. 3,800 cr. valuation – have been subject to gaming, where companies try hard to demonstrate a 4,000 cr. valuation so they can divest less.
  • SEBI’s going to change that entirely because such thresholds make no sense. It doesn’t make sense that a company valued at 4000 cr. can have a 400 cr. IPO (10%) while a 3,999 cr. valuation would mean it has to do a 1,000 cr. IPO.
  • Additionally, government owned companies have a lower public shareholding limit of 10%. Having different rules based on ownership makes no sense. So they are likely to address this too.

Here’s the video:

My take: They’ll bring the IPO limit down to 10% for everyone. There’s no need for thresholds. They will say that within a year, you must move to 25% public shareholding. There will be no gaming required.
And honestly, having to “justify” your valuation to SEBI is a little stupid – SEBI obviously was so wrong in rejecting Just Dial’s attempt to get valued at 4,000 cr. last year. Look at the share now, the company is valued at nearly 10,000 cr. today! How can SEBI have rejected that they were worth 4,000 cr last year? If anything, the market should decide the valuation, not an officer inside SEBI.
(I know that at heart, we are all leftists. Even I don’t support complete removal of regulations. But in this case, I would be on the side of the market – the alternative, of having to justify to SEBI, is even worse an idea than leaving it to the market)
Even government companies will get some time-frame to become 25% public, and will have to sell shares.
This is just my assessment, just what I would do. SEBI of course, might have other plans.


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