Securities and Exchange Board of India (SEBI) has sought public comments till November 30 on proposed rules on how companies can spend cash raised through initial public offerings (IPO) amid a flurry of blockbuster listings by new age technology companies (NATCs) such as Zomato and Paytm.

“Issuer companies are proposing to raise fresh funds for objects where object is termed as ‘Funding of Inorganic Growth Initiatives’, which includes future acquisitions, investing in new business initiatives and strategic partnerships by the company without identifying the target acquisition or specific investments proposed to be deployed out of issue proceeds, at the time of filing offer document,” the market regulator observed after a meeting of its Primary Market Advisory Committee this week.

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However, raising funds for unidentified acquisition leads to “some amount of uncertainty / ambiguity in the IPO objects,” which are amplified further in case a major portion of the fresh issue portion is earmarked for such unidentified acquisition, especially given that issuer companies already have flexibility to earmark up to 25% of the fresh issue size under general corporate purpose (GCP).

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SEBI has proposed a combined limit of up to 35% of the fresh issue size for deployment on such objects of inorganic growth initiatives and GCP.

For firms with no identifiable promoters, a share sale by significant shareholders will be capped at 50% of their pre-issue holding. Any investor holding more than 20% will be deemed a ‘significant shareholder.’

Such shareholders will face a lock-in period of six months after the share sale. This may include venture capital funds, alternate investment funds, SEBI said.

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At least 50% of the anchor investors should be those who are willing to stay invested for at least 90 days. This compares with 30 days currently.

The regulator has proposed that the issue proceeds earmarked under should be brought under monitoring.

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The utilisation of the GCP amount by the issuer company may need to be disclosed in the quarterly monitoring agency report. SEBI said companies are coming up with large-sized issues, which also makes the GCP amount very substantial.

The proposals follow the Reserve Bank of India’s decision last month to cap lending for investments in new listings at 10 million rupees per borrower, effective April 1, 2022.