The Securities and Exchange Board of India (Sebi) is reportedly evaluating a significant reform in its IPO regulations aimed at easing the public listing process for large corporations. If approved, this move could drastically reduce the minimum equity dilution requirement from 5% to 2.5% for companies with a valuation of over ₹1 lakh crore, as per a recent news agency report.
At present, Sebi mandates that companies with post-issue capital exceeding ₹1 lakh crore must dilute at least 5% of their equity in an IPO. The minimum capital to be raised is ₹5,000 crore.
According to sources familiar with the matter, Sebi may soon allow such firms to dilute only 2.5% of their equity, provided they raise a minimum of ₹7,500 crore through their IPO. This adjustment would lower the equity offload burden while enabling a higher capital raise.
"There is general consensus among committee members that an enabling provision should be provided in the regulations to allow promoters to dilute less," said a person aware of the discussions.
Several high-profile firms gearing up for public listings could benefit from this relaxed IPO requirement:
National Stock Exchange (NSE): Preparing for a public offering in 2025, valuation over $50 billion
Reliance Jio Infocomm: Owned by Mukesh Ambani, valuation over $150 billion
PhonePe: Backed by Walmart, plans to raise $1.5 billion, valuation around $15 billion
Flipkart: Also Walmart-backed, exploring a potential domestic listing
These companies may now be able to go public without heavy dilution of promoter shareholding, while still meeting regulatory and capital goals.
A sub-group within Sebi’s Primary Market Advisory Committee (PMAC) is closely studying this proposal. The move is aimed at striking a balance between regulatory compliance and market dynamics.
“You can do an IPO with a lower number and give investors access to a good company and also meet the minimum public holding norms in a defined timeframe,” said a senior investment banker.
Sebi has allowed similar exceptions in the past. A notable case is the Life Insurance Corporation (LIC) IPO in 2022:
Equity Offered: 3.5% instead of 5%
Valuation: ₹6 lakh crore
Funds Raised: ₹21,000 crore
Sebi also relaxed the lock-in period for anchor investors in LIC’s case.
Large IPOs can drain liquidity from the secondary market. An investment banker pointed out:
“It’s a challenge for promoters to create demand for a large public issue. It also sucks out liquidity from the market and causes imbalance.”
Recent IPOs that raised significant capital include:
Hyundai Motors: ₹27,000 crore
Swiggy: ₹11,300 crore+
NTPC Green: ₹10,000 crore
HDB Financial Services: ₹12,500 crore (July 2024)
Any IPO exceeding ₹10,000 crore requires direct clearance from the Sebi chairman, adding to the regulatory complexity. The proposed changes, if implemented, would streamline this process for mega IPOs.
Sebi’s proposal to allow large firms to dilute just 2.5% equity instead of 5% in IPOs represents a strategic shift towards easing capital market access for India’s most valuable companies. This initiative not only supports early investor exits without overwhelming market liquidity but also makes it feasible for these firms to meet public shareholding norms.
If approved, it will provide a major boost to upcoming IPOs from heavyweights like NSE, Reliance Jio, and PhonePe, potentially transforming the landscape of India’s primary markets. The move is seen as a balance between regulatory oversight and flexibility, aligning well with the growth ambitions of India Inc.