Centre Updates Minimum Public Shareholding Norms To Ease IPO Process

The Department of Economic Affairs (DEA) under the Finance Ministry on Friday notified changes to India’s initial public offering (IPO) rules related to the minimum offer and allotment to the public in an offer document.

In a notification dated 13 March, the government introduced a tiered framework for companies planning to list on stock exchanges. The amendment to the Securities Contracts (Regulation) Rules, 1957, allows the minimum public shareholding at the time of listing to be reduced from 5% to 2.5%.

These changes had earlier received approval from the Securities and Exchange Board of India (SEBI) in September last year before being taken up by the government.

The shift will make the process of IPOs more adaptable and attract big businesses to IPO in India.

What Has Changed In The IPO Rules?

The amount of public shareholding required at listing under the revised structure will depend on the valuation and capital structure of the company.

The minimum offer and allotment to the public, as specified in the offer document, shall be as follows:

• Firms whose post-issue capital is up to ₹1,600 crore are required to offer at least 25% of each class of equity shares or debentures to the public.

• Companies with post-issue capital above ₹1,600 crore but up to ₹4,000 crore must offer shares to the public equivalent to at least ₹400 crore.

• Companies with a post-listing valuation above ₹4,000 crore but up to ₹50,000 crore must offer at least 10% of each class of shares or debentures to the public, while increasing public shareholding to 25% within three years of listing.

• If the company’s post-listing valuation is above ₹50,000 crore but below ₹1 lakh crore, it must offer shares equivalent to at least ₹1,000 crore and at least 8% of each class of shares or debentures, and increase public shareholding to 25% within three years of listing.

• Firms with valuations between ₹1 lakh crore and ₹5 lakh crore must offer at least 2.75% of each class of shares or debentures to the public, provided the post-listing valuation of the company is at least ₹6,250 crore.

• Companies valued above ₹5 lakh crore may list with at least 1% of each class of shares or debentures, provided the public shareholding at the time of listing is below 15%, and it increases to at least 15% within five years and 25% within ten years.

• In all cases, at least 2.5% of each share or debenture must be offered to the public, subject to the specified timelines.

These amendments effectively reduce the minimum public float requirement for large companies at the time of listing.

Why Has The Government Introduced These Changes?

The decision was initially suggested by the Securities and Exchange Board of India (SEBI) with the apprehension that extremely large corporations might have difficulty in diluting big stakes via IPOs.

Players in the market had already indicated that the market cannot necessarily absorb very high share sales simultaneously. This may deter the listing of large companies in the country or may cause an oversupply after listing, which may strain stock prices.

Also read: Vedanta Ltd To Raise ₹2,575 Crore Through Non-Convertible Debentures

What Does This Mean For Investors?

To investors, the new framework may increase the pipeline of large IPOs within the Indian capital markets, which may introduce more high-value companies into the public markets.

Although the reduced public shareholding at the time of listing could initially diminish the free float in certain offerings, the staggered increase requirement would ensure that the public participation would increase over time.

When properly executed, the reforms could help to increase IPO activity, enhance capital markets, and add investment opportunities in sectors.

Sources:

Mint

Business Line