SEBI bolsters scrutiny of IPO documents

SEBI ups scrutiny of IPO: The Securities and Exchange Board of India (SEBI) is intensifying its examination of issue documents submitted by companies entering the public domain, four sources told Reuters on Monday. The move comes amid a surge in initial public offerings (IPOs) in the Indian market.

With the country's stock market on a steady rise, nearly 50 companies have initiated public offerings in 2023. While eight issues have been successfully completed this year, another 40 await clearance from SEBI.

"At least six public offer documents have been returned by the regulator, citing concerns over companies' potentially misleading statements regarding their reasons for fundraising," disclosed one of the sources.

SEBI is placing particular emphasis on scrutinising how companies intend to allocate funds raised from their IPOs, the sources revealed. They spoke on condition of anonymity due to the sensitivity of the matter. 

However, SEBI has not responded to media inquiries as of now.

Under SEBI regulations, IPO funds can be allocated for capital expenditure, debt reduction, general corporate purposes, and acquisitions. However, if funds are allocated for debt reduction, promoters' shares are subject to an 18-month lock-in period. 

Conversely, if funds are raised for capital expenditure, promoters face a three-year lock-in period.

"Some promoters are attempting to reduce the share lock-in period from three years to 18 months by claiming funds are being used to retire debt," explained the first source.
An investment banker, speaking on the condition of anonymity due to the confidentiality of discussions with regulators, noted that SEBI has requested a detailed breakdown of whether IPO proceeds are indeed being utilised to retire debt associated with capital expenditure. 

"This requirement is making disclosures significantly more intricate," they added.

Earlier this month, SEBI announced investigations into three IPOs for alleged inflation of subscription numbers. 

SEBI Chairperson Madhabi Puri Buch stressed that the regulator is actively working on measures to curb such malpractices.

(With Reuters Inputs)