Sebi proposes to allow pension funds to participate as anchor investors in IPOs

Authored by
Team Espresso
February 24 2023
2 min read

Capital markets regulator Securities and Exchange Board of India (SEBI) proposed to allow pension funds sponsored by entities that are associates of the lead managers to participate as anchor investors in an initial public offer (IPO)

At present, the pension funds which are not associates of the lead managers are permitted to participate in the book building process as anchor investors.

Although in the case of Real Estate Investment Trusts (REITS), an exception has been made to allow pension funds of entities which are associates of the lead manager to participate as anchor investors.

The regulator also proposed amendments to the rules related to the underwriting of shares in an Initial Public Offer (IPO) and Follow-on Public Offer (FPO). With regards to the announcement and issuance of bonus shares by a listed public entity, certain pre-conditions were put up as well.

In a consultation paper, Sebi suggested that in case of bonus issuance, the listed issuer can announce its bonus issue only after it has received in-principal approval from the stock exchanges for the listing of all the pre-bonus securities. This excludes ESPOs and convertible shares or warrants.

Sebi also suggested that the offer document needs to include certain disclosures that require lead managers and issuers to submit and make available material contracts and documents online. This will allow online inspection in addition to the documents submitted at the registered office.

The issuing company also needs to submit a complete industrial report in online and offline forms. As a part of the material documents for inspection, the issuer is also required to display the draft offer document and offer document on their website.

Additionally, the issuing company will also require complying with certain pre-requisites and conditions if they wish their public offer to be underwritten in the case of an undersubscription of the IPO. These conditions should be met before filing the Red Herring Prospectus (RHP).

The underwriting agreement should state the maximum number of shares the underwriter themselves will subscribe to or procure subscriptions for. The subscription to these shares should not be less than the issue price.

Sebi said that the information regarding the underwriting agreement should mandatorily be included in the RHP to provide subscribing investors with clear information while making an application in IPO. Hence, for that purpose underwriting agreement should be entered into before filing of RHP, the consultation paper added.

Sebi has sought comments from the public on these proposals till March 8.


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