Sebi halves lock-in period for promoters in IPOs to 18 months

Mumbai: The board of the Securities and Exchange Board of India (Sebi) approved a proposal to halve the lock-in period for minimum promoter contribution of 20% in initial public offerings to 18 months from the current three years. The board also agreed in principle to shift from the concept of promoter to controlling shareholders in a progressive manner. It also approved proposals to revise rules on alternative investment funds (AIFs) and employee stock option plans (ESOPs).

The regulator said the investor landscape is changing, with private equity and institutional investors holding significant shareholdings in listed companies.

“In recent years, a number of businesses and new age companies with diversified shareholding and professional management that are coming into the listed space are non-family owned and do not have a distinctly identifiable promoter group,” Sebi said in a press release.

The regulator said there is increasing focus on better corporate governance with responsibilities and liabilities shifting to the board of directors and management.

“This is a big reform because, under the ‘promoter’ definition, and even more so under the ‘promoter group’ definition, many people with whom the actual persons in control don’t even get along are classified as running the company,” said Sandeep Parekh, founder, Finsec Law advisors.

Concept Unique to India

“Disclosing such people as being in charge, merely because of some blood relation, is both inaccurate and misleading. This is a more realistic, fluid and accurate portrayal of who actually controls the company.”

The concept of promoter is unique to India. In developed markets, the concept of a ‘person in control’ is used to link decision making and primary shareholding.

“The board advised Sebi to engage with other regulators to ascertain and resolve regulatory hurdles, if any,” the regulator said. The board has representatives from the finance ministry, the corporate affairs ministry and the Reserve Bank of India.

According to an Organisation for Economic Co-operation and Development (OECD) report, aggregate shareholding of promoters in the top 500 listed entities by way of market value peaked at 58% in 2009, and is now showing a downward trend. Promoters’ shareholding was about 50% in 2018. At the same time, the shareholding of institutional investors in the top 500 listed companies, in terms of market value, increased to 34% in 2018 from about 25% in 2009. The regulator said, for pre-issue capital held by non- promoters, the lock-in period has been halved to six months from the existing one year.

Sebi has also proposed to do away with current disclosure requirements such as financials of the top five listed and unlisted group companies in the offer documents. These can be provided on the website of the group companies, Sebi said.

The Sebi board also approved a proposal to allow venture capital funds to put 75% of their investable funds in unlisted equity shares and equity linked instruments of venture capital undertakings or in companies listed or proposed to be listed on an SME exchange. Prior to this amendment, this requirement applied to two thirds of the investable funds.

The regulator said AIFs can now issue partly paid up units to investors to represent the portion of committed capital invested.

The regulator also said AIFs will have to file private placement memoranda (PPM) with it only through registered merchant bankers. ET had reported on this move by Sebi in its July 27 edition.