MUMBAI: Markets watchdog Sebi is likely to green-light a slew of proposals to further relax the ease of doing business at the board meeting scheduled for Friday. It’s the second board meeting this fiscal and the third under the chairmanship of Tuhin Kanta Pandey who, from day one after taking over on March 1, has been stressing on the need for ‘optimum regulation’.
According to sources, the board is likely to clear a slew of proposals such as easing stake dilution norms for large (above Rs 5,000 crore) initial public offerings (IPOs), further simplifying rules for foreign portfolio investors (FPIs), easing the rules for accredited investors in certain alternative investment funds (AIFs), expanding the scope of rating agencies’ activities, and granting equity status to Reits & Invits, among others.
To help large issuers comfortably close public issues, Sebi had recently floated a discussion paper suggesting reduced retail portion for large IPOs and also lowering the quantum of stake dilution through IPO based on issue size and the likely post-issue market value of the issuer.
The board is likely to clear the proposal to ease stake dilution norms for very large companies by allowing smaller initial offerings and longer timelines to meet minimum public shareholding (MPS) rules. The move is aimed at reducing the immediate pressure on issuers while ensuring gradual compliance.
According to sources, for issues with post-issue market cap of Rs 0.5–1 trillion, the minimum issue will be Rs 1,000 crore and 8% dilution, with 25% public float achieving in five years instead of the present three years.
For companies worth Rs 1-5 trillion market cap, the MPS requirement will be Rs 6,250 crore or 2.75%, and meeting the MPS deadline in 10 years depending on shareholding levels. The source said the move is to allow 1% MPS to begin with and take it to 2.5% within three years.
The board is also likely to raise the quota for insurers and pension funds in IPOs, along with allowing more anchor allocation to encourage more participation from large investors and make the process easier.
According to the source, the number of anchor allottees for IPOs sized at Rs 250–500 crore is proposed to be raised from 25 to 30, while insurers and pension funds may be included alongside mutual funds in the reserved anchor portion, by increasing the reserved portion from 33% to 40%. The proposal is to allow mutual funds to retain 33%, with the remaining 7% for insurers and pension funds. Unsubscribed portions could revert to mutual funds, diversifying the investor base.
On the proposal to amend the materiality threshold for related party transactions, on which also there was a draft paper, the source said the board may approve a threshold-based framework to determine the materiality of related party transactions while linking the compliance burden with the turnover scale of listed entities.
The new framework for related party transactions is expected to ease compliance while protecting minority shareholders by linking the related party transactions materiality thresholds to the turnover of the company. Accordingly, companies with turnover up to Rs 20,000 crore would treat such transactions exceeding 10% of turnover as material. For Rs 20,001–40,000 crore turnover, thresholds will be Rs 2,000 crore plus 5% of incremental turnover. For turnover above Rs 40,000 crore, the limit will be Rs 3,000 crore plus 2.5% of incremental turnover, capped at Rs 5,000 crore, the source said.
Currently, the Sebi norms require shareholder approval for related party transactions exceeding Rs 1,000 crore or 10% of turnover.
The board may also clear the path for credit rating agencies to rate financial instruments overseen by other financial sector regulators like RBI, Irdai, Pfrda, IFSCA, MCA and IBBI, provided they comply with the respective regulatory framework on eligibility, risk management, grievance redressal, and enforcement, the source said.
There is also a proposal to classify Reits and Invits as equity, which are currently treated as hybrid instruments blending debt and equity features. This idea is to allow mutual funds to include these instruments in equity schemes, increasing retail investor access and boosting participation.
Another proposal that may get the green light is to separate AIF schemes for accredited investors by approving a new type of alternative investment fund scheme exclusively for accredited investors with a lighter regulatory framework.