SEBI mulls relaxing minimum public offer size for large companies: What would change for big IPOs?

Markets regulator SEBI has proposed major relaxations in the minimum public offer (MPO) requirements for very large companies and an extension of timelines to comply with minimum public shareholding (MPS) norms.

In a consultation paper released on Monday, the regulator said that the current framework often compels large issuers to undertake disproportionately large equity dilution at the time of listing, which the market may not always be able to absorb.

This has emerged as a deterrent for some large corporates, including public sector undertakings, from pursuing IPOs in India.

At present, companies with post-issue market capitalisation exceeding ₹1 lakh crore must make a minimum public offer of ₹5,000 crore and at least 5% of post-issue share capital. They are further required to increase public shareholding to at least 10% within two years of listing and 25% within five years.

Feedback from stakeholders, SEBI noted, suggests that such large-scale dilutions within the prescribed timelines create execution challenges and can weigh on share prices, despite strong fundamentals.

“Mandating substantial equity dilution for meeting the MPS requirements, immediately after the IPO can lead to an oversupply of shares in the market,” the regulator said.

“This anticipation of further dilution may impact the share prices, despite strong company fundamentals, and may adversely impact existing public shareholders,” it added.

Issuers with substantial reserves, or those not in a high-growth funding phase, often have little incentive to raise large amounts of capital quickly, the paper pointed out.

According to the consultation paper, the proposed framework, if implemented, would reduce the immediate dilution burden while still ensuring gradual compliance with public shareholding norms.

The proposal may encourage large issuers to pursue listings in India.

Proposed relaxations

SEBI has now proposed a tiered framework for issuers above ₹50,000 crore in market cap.

For issuers with post-issue market cap between ₹50,000 crore and ₹1 lakh crore, the minimum public offer may be revised from 10% to ₹1,000 crore and at least 8% of post-issue share capital. Such issuers will also get five years, instead of three, to reach the mandatory 25% MPS.

For companies valued between ₹1 lakh crore and ₹5 lakh crore, the revised MPO would be ₹6,250 crore and at least 2.75% of post-issue share capital. Where public shareholding at listing is below 15%, it must be raised to 15% within five years and 25% within 10 years. If the public float is already 15% or more, the 25% threshold must be met within five years.

For issuers with post-issue market cap above ₹5 lakh crore, the proposed MPO is ₹15,000 crore and at least 1% of post-issue share capital, subject to a minimum dilution of 2.5%. In these cases, if public shareholding is less than 15% at listing, it must reach 15% within 5 years and 25% within 10 years, while issuers with at least 15% public shareholding at listing must achieve 25% within 5 years.

This means companies can list with smaller IPOs initially, while gradually increasing their public shareholding over a longer period, reducing the immediate burden of large-scale equity dilution.

Liquidity safeguards

The regulator emphasised that despite lower initial floats, liquidity is unlikely to be adversely affected. An illustration in the paper showed that even a 2.5% dilution in a company with ₹10 lakh crore market cap would result in ₹25,000 crore worth of shares being available for trading at listing, far higher than free float seen in many Nifty 50 and Nifty 100 companies.

“Further, the Stock Exchanges shall continue to monitor such companies through their surveillance mechanism and related measures to ensure orderly functioning of trading in shares of such issuers,” SEBI said.

Applicability to existing issuers

The consultation paper also proposes that listed companies that have not yet met current MPS timelines may benefit from the extended schedule.

"However, any fines / penalties levied or to be levied by the Stock Exchanges, shall be continued to be paid by the listed entity from the date of non-compliance till the date of notification of the proposed timelines," the paper said.

SEBI has sought public feedback on the proposals till September 8, 2025.