SEBI introduces the concept of Specific Investors in ICDR Regulations

Introduction

The Securities and Exchange Board of India (SEBI) vide its notification dated 3rd March 2025 has introduced the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Amendment) Regulations 2025 in order to amend the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations 2018. The amendment came into effect on 04th of March 2025.

Aspects of SME IPOs, the rights issues domain, the main board IPO framework and related disclosures, the harmonization of various provisions in the SEBI ICDR Regulations with the SEBI (Listing Obligations and Disclosures Requirements) Regulations, 2015 (“SEBI Listing Regulations”), and other topics are all covered by these amendments. Below is a detailed discussion of the main revisions pertaining to IPOs. Please take notice that since the recent ICDR Amendments were published in the Official Gazette, all of the amendments covered below have already taken effect.

Key Amendments Introduced

The amendment has introduced significant new regulations in the capital markets prism which are as follows:

1. Stock Appreciation Rights – the amendment has altered the SEBI regulations to introduce Stock Appreciation Rights (SARs) as a valid instrument for dilution which are exercised fully before the filing of Red Herring Prospectus (RHP) along with the Employee Stock Option Plans (ESOPs) and securities which are compulsorily convertible. According to the notification, the necessary disclosure requirements pertaining to Stock Appreciation Rights must also be made accordingly in the draft offer documents and the actual offers. This amendment therefore is also in harmony with the existing provisions of the SEBI (Share based employee benefits and sweat equity) Regulations 2021 which allow and regulate these stock-based benefits and listing by the SEBI listing regulations. It also delves in detail into the consultation paper released by the expert committee in order to facilitate the ease of doing business and the harmonization of the provisions of SEBI ICDR Regulations and SEBI listing obligations.
2. Promoter Lock In – during the pre – amendment regime, in case the majority of fresh issue proceeds are proposed to be utilized for the capital expenses, the minimum promoter contribution (MPC) shall be for a period of three years from the date of allotment of the initial public offer, otherwise the MPC shall have a lock – in period of eighteen months. Moreover, the promoters who hold in excess of the minimum promoter contribution shall be locked in for a six-month period. In case the majority of fresh issues are proposed to be utilised for capital expenditure, the lock in period shall be for one year.
3. Reporting of Pre-IPO Transactions: disclosing the pre-IPO transactions has been made mandatory, which needs to be reported on the stock exchanges within the time limit of 24 hours of such pre-IPO transactions. This is in alignment with the advisories that have been issued by the SEBI previously in reference to the public announcements and price band advertisement with reference to the proposed or undertaken pre – IPO placement and should be read together in conjunction with the previous notifications in this regard.

Changes in Compliance Timelines

The above notification by SEBI has brought in numerous changes in reference to faster approval process, revised timelines for compliances and changes in renunciation provisions for rights issues. Some of the notable provisions are as follows:

1. The notification has omitted the public announcement of the draft letter of offer on the website of the issuer for public comments.
2. The notification has also reduced the timelines for faster approval of the processes for the rights issue by the listed approvers. The rights issue amendments are in line with the consultation paper released for faster rights issue with flexibility of allotment to selective investors on August 20, 2024. Post the Amendment, the draft letter of offer is not required to be filed with SEBI; instead, it can be directly filed with stock exchanges.
3. The SEBI ICDR regulations have been made uniformly applicable for all the rights issues regardless of the issue size.
4. A newer eligibility criterion has also been added wherein in case there is a suspension of the equity shares of the issuer in trading as a disciplinary measure as on a particular date, the issuer shall not be eligible to make the rights issues. This will impact the companies by deterring them under the trading suspension from using the rights issues as a means to resolve their liquidity issues.
5. The SEBI ICDR Regulations threshold for applicability for rights issues by listed issuers with an aggregate value of INR 50,000,000 (Indian Rupees 50 crore) or more under Regulations 3 and Regulation 60 of SEBI has been removed.
6. Additionally, the amendment permits the promoters or promoter group to forego their rights and benefits in favor of particular investors. This amendment created Regulation 77 B, which defines the specified investor as any investor who is qualified to participate in a rights issue and whose name has been revealed by the issuer in the issue-related ads in accordance with Regulation 84. Additionally, under the conditions outlined in the amendment, the issuers may assign any unsold shares to particular investors. According to the amendment, the issuer’s plan to distribute the undersubscribed share of the rights issue to particular investors shall be made clear in the offer letter.

Conclusion

This amendment has brought in numerous significant changes including the introduction of Stock Appreciation Rights (SARs) as a valid instrument for dilution which aligns with the evolving corporate incentive structure. Additionally, the amendment resolves recurrent SEBI observations on draft offer documents and harmonizes existing provisions under several SEBI regulations. The timelines for public comments and the combination of price band and pre-issue ads are two examples of the modifications made to public announcement standards.

King Stubb & Kasiva,
Advocates & Attorneys

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