With boom in IPOs, SEBI intensifies scrutiny of corporate documents
What's the story
India's market watchdog, the Securities and Exchange Board of India (SEBI), is ramping up its scrutiny of documents submitted by companies planning to go public, per Reuters. The move comes as the Indian market experiences a boom in initial public offerings (IPOs), with nearly 50 companies having launched public issues in 2023 and eight more so far this year. Additionally, 40 more companies are awaiting SEBI's approval.
Concerns around fundraising
Companies providing misleading information about their fundraising intentions: SEBI
SEBI has reportedly sent back at least six public offer documents, citing concerns that companies are providing misleading information about their fundraising intentions. The regulator is specifically examining how companies plan to use the funds raised through IPOs. The SEBI regulations state that IPO proceeds can be used for capital expenditure, debt reduction, general corporate purposes, and acquisitions.
Exploiting the caveat
Promoters circumventing lock-in periods
By claiming IPO funds will be used to retire debt, companies are sidestepping the law and shortening the share lock-in period from three years to 18 months. The lock-in period refers to the period for which stocks cannot be redeemed. SEBI has requested a breakdown of whether IPO proceeds are being used to pay off debts, making disclosures more complex. Earlier, SEBI revealed it was investigating three IPOs for allegedly inflating subscriptions and is developing measures to prevent such misconduct.