SEBI Plans Relaxation of Minimum Shareholding Rules to Boost Market Expansion

In a consultation paper published on August 18, the Securities and Exchange Board of India (SEBI) suggested expanding the flexibility of minimum public shareholding (MPS) and minimum public offer (MPO) for businesses looking to list with the goal of “simplifying fundraising by issuers in India”.

Key Highlights from SEBI’s Consultation Paper

 In the paper, SEBI suggested raising the MPO for businesses that are getting close to listing, increasing the MPS after listing, and extending the timeframes to accomplish the latter.

Post-issue market capitalisation (m-cap) threshold buckets should be changed to INR 4,000 crore to INR 50,000 crore, INR 50,000 crore to INR 1 lakh crore, INR 100,000 crore to INR 5 lakh crore, and above INR 5 lakh crore, according to the document. It is currently at INR 1 lakh crore, INR 4,000 crore, and much beyond INR 1 lakh crore. Additionally, SEBI has extended the deadline for MPS compliance.

Proposed Changes in Minimum Public Shareholding (MPS) Rules

According to SEBI, it is suggested that the current three-year period for meeting the MPS threshold of 25% be extended to five years from the date of listing for issuers having a post-issue market capitalisation of more than INR 50,000 crore but less than or equal to INR 100,000 crore.

Five years was suggested as the time frame to reach 15% ownership, while ten years was suggested as the time frame to reach 25% post-listing MPS. The capital market regulators also asked for public input on lowering the MPO for buckets from INR 50,000 crore to INR 1 lakh crore.

According to the Securities Contract Regulations Rules (SCRR), SEBI also stated in the paper that issuers with a post-issue market capitalisation of more than INR 100,000 crore are required to guarantee MPO of INR 5,000 crore and at least 5% of the post-issue share capital. They are also required to increase their public shareholding to at least 10% within two years of the date of listing and then to a minimum of 25% within five years.

Impact on Large-Cap IPOs in India

According to SEBI, it might be challenging for big issuers to dilute a sizable shareholding through an IPO since the market might not buy back the shares sold and might deter subsequent listings.

Additionally, it stated that “requiring a significant dilution of equity to satisfy the MPS requirements right after the IPO may result in an excess of shares in the market, impacting share prices irrespective of the firm’s financial stability.”

Industry experts feel that this is a welcome proposal for very large market cap companies, as it will reduce requirements to seek ad hoc or one-time SEBI relaxations.