SEBI planning to revamp IPO rules: What changes for companies?
What's the story
The Securities and Exchange Board of India (SEBI) is mulling a major overhaul of its initial public offering (IPO) regulations. The move is aimed at simplifying the rules, removing ambiguities, and closing loopholes that may be exploited by companies or promoters. A panel has been formed under the SEBI committee on primary issuances to review these regulations.
Steps
Panel tasked with reviewing existing regulations
The newly formed panel has been given the task of simplifying the regulations, removing anomalies and redundancies, and addressing the loopholes in the Issue of Capital and Disclosure Requirements (ICDR) Regulations. The ICDR Regulations were last amended in 2018, making a full review overdue as market dynamics have changed significantly since then. The panel's mandate is to "demystify the IPO process and regulations."
Regulation complexity
Why review of these regulations was necessary
The 2018 ICDR Regulations span 475 pages, a length deemed excessive with many provisions possibly irrelevant in the current context. Although these regulations have been amended as per stakeholder concerns, a comprehensive review is now deemed necessary. Compliance with these rules often results in Draft Red Herring Prospectuses (DRHPs) and Red Herring Prospectuses (RHPs) running into hundreds of pages, leading to issues of non-disclosure or improper disclosure.
Expert input
Panel expected to submit findings by September
The panel for the revamp of the ICDR Regulations 2018 comprises merchant bankers, industry representatives, as well as legal experts with expertise in securities markets. It is expected to submit its findings by September. After that, the matter will be placed before an advisory committee for primary markets. A public consultation followed by board approval process may follow before any changes are implemented.
Regulatory concerns
Issues flagged by experts
Securities market experts have flagged issues such as inconsistent valuation methods for loss-making companies under the existing ICDR Regulations. They suggest that uniform valuation frameworks and disclosure of key assumptions could improve pricing transparency. Other concerns include the influence of existing shareholders on public issue pricing, which could be addressed by regulating their involvement to ensure better alignment with investor interests.