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Impact of new SEBI regulations on IPOs

For all book-built issues, SEBI has additionally established a minimum price band of 105% of the floor price. This adjustment will promote accurate price discovery by preventing issuers from misrepresenting a fixed price issue as just a book-built issue.

The amendments to the Articles of Association (AoA) of PNB Housing Finance come in the wake of the failure of the PNB Housing Finance-Carlyle Group deal, whereby the preferential allotment to Carlyle Group had to be axed due to SEBI’s directive that a valuation be performed by an independent valuer, in accordance with PNB Housing Finance’s articles of association.

The method of determining a floor price in a preferential issue for a frequently traded security has been changed by SEBI, which now states that the floor price in a preferential issue for a frequently traded security shall be the higher of 90/10 trading days’ volume weighted average price (VWAP) of the scrip preceding the relevant date or any stricter provision in the issuer company’s AoA. A valuation report from a registered independent valuer would be required for an infrequently traded security. Furthermore, in the event of a change in control or allocation of more than 5% of the post-issue share capital, an allottee or allottees acting in concert, a valuation report is now required to determine the floor price.

SEBI requires that upon a change in control, a committee of independent directors submit a reasoned proposal as well as comments on all areas of preferential issuance, including pricing. This is in reaction to difficulties that have arisen as a result of the PNB Housing deal, and SEBI has attempted to close the regulatory vacuum. The necessity of a valuation report for each issue of shares with a market capitalization of more than 5% is overly restrictive and opens the door to future conflicts.

Source: Barandbench

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