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Kolkata: Capital markets regulator Sebi (Securities and Exchange Board of India) has changed IPO regulations related to lock-in requirements of shares. On Dec 17, Sebi announced rolling out of a technology-enabled system for correctly marking pledged pre-issue shares as locked-in. Sebi also approved a proposal to replace the abbreviated prospectus with a brief offer document summary which will be limited to key information, to make IPO disclosures more investor-friendly.
What is means in effect is that companies raising funds through the IPO route must provide a summary of the offer documents when filing their DRHP. It has also ruled that shares pledged by non-promoters of the IPO issuing company will be non-transferable.
IPO documents, especially DHRP, are too long, winding and tiring for an average investor for perusal and they often fail to focus on the important information in that mass of faceless grey words. Sebi has decided to address this concern. Following suggestions that a summary document be provided, the regulator has decided that a shorter prospectus will be provided containing the essential information. A shorter prospectus is already a legal requirement under Section 33 of the Companies Act.
A draft abbreviated prospectus with a QR code will also be made available at the draft stage. It will allow investors to easily access all announcements and important information related to the public issue. Investors will also quickly understand important information without having to read the entire document.
Currently, promoter shares in an IPO are locked in for six months. Henceforth non-promoter shares will also need to be locked in for the same period of six months. Also under the current regulations, all pre-issue capital held by individuals other than promoters, except for certain specified shareholders, must be locked in for six months which will be counted from the date of allotment in a public issue. However, depositories are currently unable to mark pledged shares as locked in, creating compliance difficulties for companies preparing for listing.
SEBI received several representations from market participants stating that issuers face difficulties when some pre-issue shares are pledged before the IPO filing. But such shares are easily transferable and shareholders can pledge them at any time before the issue. Issuers often find it difficult to track or coordinate with them during the tight timeline of an IPO.
The regulator also said that IPO issuing companies have to amend their internal rulebook (Articles of Association) to ensure that pledged shares remain locked-in for a specified period, and even upon pledge or redemption, the shares remain locked-in in the respective accounts of the pledger or pledgee. Companies launching IPOs will have to inform all lenders and pledgees about the changes made to the Articles of Association as well as include these details prominently in their draft and final offer documents (DRHP and RHP).
