We have seen 2021 flooded with public issues thereby market regulator SEBI has tightened the IPO rules to safeguard retail investors’ hard-earned money. The changes proposed will be applicable from the new financial year 2023. Let’s check out the SEBI New Rules for IPO Application.
SEBI NEW Rules for IPO Application in 2023
We will have a look at the revised rules to introduce them to SEBI
- Companies can utilize 35% of the IPO proceed (25% cap on unidentified acquisition) from an IPO. To curb public fundraising for vaque reasons this guideline is introduced. Earlier the nature of the Utilization of the IPO proceeds was never scrutinized. Now companies will be more judicious in raising funds. Consequently, they will be answerable for the utilization of proceeding.
- As per the new rule, anchor investors have to lock in half of their stake for 90 days. Previously there was an initial 30 days lock-in period for the complete amount. Now 50% of their share they can withdraw after 30 days and remaining after 90 days. To woo retail and noninstitutional investors, issuing company allot shares to big parties anchor investors. The earlier lock-in period of 30 days hit hard to noninstitutional and retail investors after lock in period expiry.
- The upper price band of ths issuing price should be atleast 105 percent of the floor price of the band. For example, if the floor price is Rs.100 then the upper price should be Rs.205 atleast. Earlier whatever price band promoters and merchant banker set a meaningless price band, investors has to bid. Bidding on the upper band is the only way to get an allotment. Hence defeating the purpose of price discovery for which book building process came into the picture.
- Now there is a regulation on sale of shares by existing shareholders. Existing shareholders having a stake of 20% pre-issue cannot offer more than 50% of the stake in an IPO. In addition, shareholders having 20% shareholding cannot sell more than 10% of its stake during IPO process. This was happening to exit the existing shareholder from private equity funds. With this change, now early investors will have skin in the game and could result in better pricing of the IPO.
- In case of preferential allotment, the foor price to be higher than the volume-weighted average of the last 90days or 10days.As a result, companies now to price as per the ongoing market price.
- Rating agencies now have to monitor the IPO proceed till 100 percent utilization.
These are important changes made by SEBI in the interest of genuine investors to promote transparency and a better platform for companies listing.
Hope you like the article, we have brought the context only relevant to retail and non-institutional investors.
Today’s New IPO Listing – How to Choose Best IPO for Investment?
Face Value in IPO – How to Calculate Face Value or Nominal or Par value?
Lot Size in IPO – How to Calculate Lot Size? | Can I Modify IPO Lot Size?
Book Built Issue IPO – Process | Steps | Types | Pros & Cons
Price Band in IPO – How is the Price Band of an IPO Decided?
Undersubscribed IPO – What Happens if the IPO is Undersubscribed?
Listing Gains in IPO | Highest Listing Gain IPO in India
When Can I Sell IPO Shares? Can I Buy & Sell an IPO in the Same Day?
Types of Investors in IPO – What is the difference between RII, NII, QIB & Anchor Investors?
How Many Lots Can We Buy in IPO to increase the chances of an allotment?