In a consultation paper released on Monday, the securities market regulatory SEBI has recommended relaxing the minimum public offer requirements for very large companies, and also extending the timelines for these companies to meet minimum public shareholding norms.

The proposed framework, if adopted, is aimed at reducing the immediate dilution pressure on issuers while enabling them to meet public shareholding requirements in a phased manner.

As part of this approach, the Securities and Exchange board of India (SEBI) has propsed retaining the retail quota at 35 per cent, in line with the existing regulations.

SEBI had previously proposed cutting the retail quota for IPOs above Rs 5,000 crore from 35 per cent to 25 per cent, citing difficulties faced by issuers in managing large issues.

Rather than reducing retail participation, the regulator aims to address issuer concerns by revising the rules on minimum public offer thresholds.

SEBI noted that very large issuers often struggle to dilute substantial stakes through an IPO, as the market may not be able to absorb such a large supply of shares. The proposed framework, therefore, is aimed at making Indian listings more feasible for such companies.

At present, large companies are required to offer a higher percentage of their shareholding to the public upfront, which often results in massive IPO sizes. These can be difficult for the market to absorb and may discourage companies from coming to the domestic market.

Under the proposed rules, however, the large issuers will have the flexibility to start with smaller IPOs and gradually meet shareholding requirements over a longer period.

For example, firms with a market capitalisation between Rs 50,000 crore and Rs 1 lakh crore will be required to make a minimum public offer (MPO) of at least ₹1,000 crore and 8% of post-issue capital, while meeting the 25% minimum public shareholding (MPS) requirement within five years.

The companies that have a market capitalisation between Rs 1 lakh crore and Rs 5 lakh crore will be required to make an MPO of Rs 6,250 crore, amounting to at least 2.75% of post-issue capital. If public shareholding at listing falls below 15%, it must be increased to 15% within five years and further to 25% within ten years. However, if the public float is already 15% or higher at listing, the 25% requirement must be met within five years.

For companies with a market capitalization exceeding Rs 5 lakh crore, the proposed MPO is set at Rs 15,000 crore and at least 1% of post-issue capital, with a minimum dilution of 2.5%. Here too, issuers listing with public shareholding below 15% will have up to 10 years to meet the 25% requirement, while those starting with public shareholding of 15% or more must achieve the threshold within five years.

SEBI pointed out that this staggered approach would reduce the pressure of large-scale dilution immediately after listing.

Additionally, mandating substantial equity dilution for meeting the MPS requirements, immediately after the IPO can lead to an oversupply of shares in the market. This anticipation of further dilution may impact the share prices, despite strong company fundamentals, and may adversely impact existing public shareholders.