SEBI’s view to regulate IPO proceeds’ use is welcome. But curbs on large investors may not fly
The slew of ‘new-age’ businesses that have recently lined up to tap the markets seem to have prompted SEBI to rethink its Issue of Capital and Disclosure Requirements (ICDR) rules governing public offers. In a consultation paper, the regulator has proposed to tweak regulations to more closely monitor the use of issue proceeds and enhance skin-in-the-game for incumbent investors. However, given that it is abnormal valuations and inherent business risks that make new-age IPOs such dicey propositions for retail investors, it is moot if safeguards such as these can completely mitigate the risks.
While the above moves strike a balance between sustaining a favourable regulatory environment for new-age IPOs and protecting investor interests, the proposal to allow large investors with over 20 per cent equity to sell only 50 per cent of their shares in offers for sale, irrespective of their vintage, may put a serious damper on PE-funded companies seeking a local listing. PE investors who seek exits through listing have usually stayed with a company for several years and have obligations to their own investors on timely exits. If SEBI’s intent is to ensure skin-in-the-game for incumbent management, this objective may be better served by treating controlling shareholders with a significant say in the company’s management, in the same manner as its promoters. Promoters of companies going public are presently required to retain a minimum 20 per cent equity stake post-listing with their shares subject to a 18 month lock-in period. The same rules can be applied to controlling shareholders too.