Introduction to SEBI's Role in IPOs
The Securities and Exchange Board of India (SEBI) is the regulatory body responsible for overseeing and regulating securities markets in India. For Initial Public Offerings (IPOs), SEBI establishes guidelines to ensure market integrity, protect investor interests, and maintain transparency throughout the IPO process.
These guidelines cover every aspect of the IPO process, from eligibility criteria for companies to post-listing obligations, ensuring a standardized and transparent approach to public offerings.
Company Eligibility Requirements
Track Record Requirements
- Minimum 3 years of operations with consistent track record
- Net tangible assets of at least ₹3 crores in each of the preceding 3 years
- Average operating profit of ₹15 crores during the preceding 3 years
- Net worth of at least ₹1 crore in each of the preceding 3 years
Additional Requirements
- The aggregate of the proposed issue and all previous issues in the same financial year should not exceed 5 times the pre-issue net worth
- If the company has changed its name, at least 50% of revenue for the preceding 1-year should be from the new activity
- The company should not be referred to the Board for Industrial and Financial Reconstruction (BIFR)
Issue Size and Category-wise Allocation
Minimum Issue Size
SEBI mandates a minimum issue size based on the following criteria:
- Minimum 10% of post-issue paid-up capital for issues above ₹4,000 crores
- Minimum ₹400 crores for issues up to ₹4,000 crores
Category-wise Allocation
| Category | Allocation | Notes |
|---|---|---|
| QIB | Up to 50% | 60% for book-built issues |
| NII | Minimum 15% | High Net-worth Individual Investors |
| RII | Minimum 35% | Retail Individual Investors |
Filing and Disclosure Requirements
Draft Red Herring Prospectus (DRHP)
The DRHP is a crucial document that must contain comprehensive information about:
- Company's business operations and financial position
- Risk factors and management perspective
- Objects of the issue and fund utilization
- Legal and other information
Due Diligence Requirements
- Appointment of SEBI-registered merchant bankers
- Legal compliance verification
- Financial statements authentication
- Business model validation
Lock-in Period Requirements
Promoter's Contribution
- Minimum 20% of post-issue capital locked for 3 years
- Excess promoter holding locked for 1 year
- Calculation of promoter's contribution
Other Lock-in Requirements
- Pre-issue capital held by non-promoters: 1 year
- Venture capital funds: Special provisions
- Employee stock options: Specific conditions
Post-Issue Obligations
Monitoring Agency Requirements
For issues above ₹100 crores, companies must appoint a monitoring agency to oversee the use of proceeds.
- Quarterly reporting requirements
- Deviation reporting mechanism
- Shareholder approval for changes
Continuous Compliance
- Regular financial reporting
- Material development disclosures
- Corporate governance requirements
- Investor grievance mechanism