The Securities and Exchange Board of India (Sebi) proposed a fix for the long-standing challenges around locking in pre-initial public offering (IPO) pledged shares and replacing the abridged prospectus with a simplified document summary.
In a consultation paper, the regulator has proposed to enact these changes by amending the Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2018.
Under current ICDR norms, pre-issue shareholding -- other than promoters -- must be locked in for six months post-IPO.
However, depositories are unable to create lock-in when shares are pledged, creating last-minute compliance hurdles for issuers, especially in companies with numerous or untraceable shareholders.
To address this, Sebi has proposed allowing depositories to mark such pledged shares as 'non-transferable' for the duration of the lock-in period, based on instructions from the issuer.
Issuers would also be required to amend their Articles of Association to ensure that, upon pledge invocation or release, the shares automatically continue under the required lock-in in the pledgee or pledger's account.
The regulator said NBFCs that lend against unlisted shares have concurred with the proposed framework.
The market regulator has also proposed eliminating the mandatory abridged prospectus -- currently required to accompany every IPO application -- and replacing it with a standardised 'offer document summary'.
The summary would be submitted along with the draft offer document and hosted separately on the Web sites of Sebi, stock exchanges, the issuer, and lead managers.
It would contain focused, retail-friendly disclosures, including business and industry summaries, key risks, financial highlights, top litigation, and promoter information.
The move follows concerns that voluminous offer documents deter retail investors from meaningful review, leading many to instead rely on unverified grey-market or social-media cues.
Feature Presentation: Ashish Narsale/Rediff
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