Sebi proposes tight leash on use of IPO fund

Tags: News
Markets regulator Sebi proposes to make it mandatory for companies to appoint a ‘monitoring agency’ to oversee orderly utilisation of funds raised through public offers.

The Securities and Exchange Board of India (Sebi) on Tuesday released a discussion paper, proposing the norm for all public issues irrespective of issue size to check misuse of funds raised through public issues and tighten disclosures on fund utilisation.

Companies raising funds through share sale now need to appoint such a monitoring agency only if issue size is above Rs 500 crore.

Sebi said the monitoring agency could be a public financial institution or a scheduled commercial bank named in the offer document as bankers to the issuer, and it would make its observations public and report any deviation from the stated objective of the issue on a quarterly basis.

The regulator proposes to grade deviations from objects stated in the offer document on a 2-digit scale. “Wherever there is a deviation from the stated objects, the agency will grade the deviation and send its report to the stock exchanges on a quarterly basis till the funds are fully utilised,” the Sebi discussion paper said.

As per the Sebi (Issue of Capital and Disclosure Requirements) Regulations, 2009 offer documents for a public issue need to contain disclosures about the “objects of the issue”.

The proposed changes are in line with the Companies Act, 2013, which has provisions for deviation in utilisation of issue proceeds.

Section 13(8)(ii) of the Act says a company shall not change its objects for which it raised money through prospectus, unless a special resolution is passed by it and the dissenting shareholders have been given an opportunity to exit by the promoters and shareholders having control in accordance with the regulations to be specified by Sebi.

The market regulator proposes to raise the frequency of reports from the monitoring agency to quarterly from half-yearly, that too within 45

days from the end of the quarter.

The reports will be submitted to the stock exchanges for public dissemination, against the present practice of the issuer company requiring to disclose only any material deviation to the bourses under the listing agreement.

Sebi has sought comments/suggestions on the draft framework from all stakeholders, including the listed companies on or before March 25. It says the move will strengthen the monitoring of utilisation of funds raised through issuance of equity shares to the public. Sebi recently amended the Sebi (Issue of Capital and Disclosure Requirements) Regulations and capped the amount that can be earmarked for “general corporate purpose” at 25 per cent of the total issue size.

Sebi also plans to have a committee of the company’s board of directors to oversee the monitoring of fund utilisation. The committee will comprise mostly independent directors and will be headed by an independent director, the discussion paper said.

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