SEBI board eases IPO rules, clears single-window entry for FPIs; revamps framework for anchor investors

Markets regulator SEBI on Friday approved sweeping reforms to initial public offerings (IPOs), disclosure requirements, and investor participation frameworks in a bid to enhance the ease of doing business and deepen capital markets.

IPO norms eased for large companies

The board recommended amendments to allow large issuers to list with lower initial public floats and extended timelines to meet the mandatory 25% minimum public shareholding (MPS).

Addressing a press conference after the board meeting, SEBI chief Tuhin Kanta Pandey said timelines for very large firms to meet minimum public shareholding requirements have been extended to as much as 10 years.

Companies with post-issue market capitalisations above ₹1 lakh crore will be required to offer at least 2.75% of shares to the public, compared to the current 5%.

They will get up to 10 years, instead of five, to meet the full MPS requirement.

The regulator said the changes would prevent “price overhang” from rapid equity dilution and encourage more large firms to list domestically.

"Extended period for large issues also do not pose risk of low liquidity in large size IPO," it added.

Anchor investor framework widened

The board also decided to revamp the share-allocation framework for anchor investors in IPOs with the objective of broadening institutional participation.

At present, reservation in the anchor book is available only to domestic mutual funds, excluding other long-term institutional investors.

Life insurance companies and pension funds will now be part of the reserved anchor portion alongside domestic mutual funds.

The overall reservation for the anchor portion has been increased from one-third to 40%. Of this, one-third will continue to be reserved for domestic mutual funds, while the remaining will be reserved for life insurance companies and pension funds.

The regulator has decided to increase the number of anchor investors permitted for IPOs with an anchor portion exceeding ₹250 crore, by increasing the existing limit from 10 to 15 per ₹250 crore.

"The number of permissible anchor investor allottees for allocations above ₹250 crore has been increased. Thus, a minimum of 5 and a maximum of 15 investors shall be allowed for allocations up to ₹250 crore. For every additional ₹250 crore or part thereof, an additional 15 investors are to be permitted, subject to a minimum allotment of ₹5 crore per investor," the SEBI chief said.

Boost for foreign and alternative investors

The regulator cleared the introduction of Single Window Automatic & Generalised Access for Trusted Foreign Investors (SWAGAT-FI).

The system will provide easier market access for low-risk foreign investors, unify registration across multiple routes and cut down on repeated compliance and documentation.

The regulator approved a lighter regulatory framework for Alternative Investment Funds (AIFs) with accredited investors. SEBI will introduce a new category of “AI-only” schemes, which will be open exclusively to accredited investors.

Reclassifying REITs

The regulator also approved changes to boost participation in real estate and infrastructure trusts. Real estate investment trusts (REITs) will now be classified as “equity” instruments for mutual funds, enabling them to be included in equity indices and counted within equity investment limits. Infrastructure investment trusts (InvITs) will continue to be treated as hybrid instruments.

When asked about why InvITs were left out, an official said that the SEBI proposed equity classification for both REITs and InViTs but the regulator "gone by the feedback" received from stakeholders.

"In the first stage, we'll consider only REITs as equity and going forward, we will look at InViTs also," the official said.

"We don't want to be disruptive. And If you look at the InViTs industry, most of InViTs are privately listed," he added.

The definition of “strategic investor” has been expanded to include a wider range of institutions such as provident funds, pension funds and certain non-banking financial companies, giving InvITs and REITs more flexibility in raising capital.