The Securities and Exchange Board of india (SEBI) is tightening scrutiny of Initial Public Offering (IPO) documents amid a surge in companies launching IPOs in the indian stock market. SEBI's recent rejection of IPO papers from approximately six companies reflects its heightened caution regarding the surge in market entries.
The regulator is increasing scrutiny to ensure transparency and accuracy in the IPO documents submitted by companies. SEBI's investigation revealed that these companies were providing misleading information about the reasons for raising funds through IPOs. In 2023, approximately 50 companies entered the stock market with IPOs due to the prevailing boom.
In the current year, eight IPOs have already been introduced, with an additional 40 awaiting approval from SEBI. Sources indicate that SEBI became suspicious when it discovered discrepancies in the reasons cited by these companies for raising funds. The regulator emphasized the importance of companies providing accurate and truthful information about the purpose of raising capital through IPOs to protect the interests of investors.
SEBI's rules outline various permissible uses for funds raised through IPOs, including capital expenditure, debt repayment, corporate needs, and acquisitions. Depending on the purpose, different lock-in periods apply. If funds are allocated for debt repayment, the shares of promoters and major shareholders are subject to an 18-month lock-in period. For capital expenditure, the lock-in period extends to three years.
To prevent manipulation aimed at reducing lock-in periods, SEBI is demanding comprehensive details about how companies plan to use funds allocated for debt repayment. Some companies have claimed to use funds for loan repayment while intending to utilize them for capital expenditure. SEBI's recent actions align with its commitment to investigating irregularities and ensuring the integrity of the IPO process.
Earlier this month, SEBI announced an investigation into three IPOs for alleged subscription number manipulation, emphasizing its dedication to addressing such irregularities. SEBI Chairperson Madhabi puri Buch reiterated ongoing efforts to address and rectify such issues in the IPO market.
