SEBI Propses Relaxation Of Pre-IPO Rules

The Securities and Exchange Board of India (SEBI) has unveiled significant proposals to streamline India's initial public offering process by relaxing pre-IPO lock-in requirements and simplifying disclosure norms. The consultation paper released on November 13, 2024, outlines reforms aimed at reducing operational frictions that companies face when preparing to list and at improving the accessibility of IPO documents for retail investors.

Challenges With Pledged Shares

A key issue highlighted by the regulator involves pledged shares held by non-promoter shareholders. Under the existing Issue of Capital and Disclosure Requirements Regulations of 2018, all pre-issue capital held by non-promoters must be locked in for six months after listing. However, the current depository framework cannot automatically enforce lock-in conditions when shares are pledged. 

This gap has created persistent compliance problems for issuers, particularly those dealing with a large number of shareholders or incomplete shareholder records during the final stages of an IPO. SEBI Chairman described the process as cumbersome, contributing to last-minute delays.

SEBI’s Proposed Lock-In Framework

To resolve this, SEBI has proposed allowing depositories to classify pledged shares as non-transferable for the duration of the lock-in period based on instructions from the issuer. Companies will also be required to amend their Articles of Association to ensure that pledged shares remain subject to lock-in even if the pledge is invoked or released. 

Under the revised framework, locked-in shares will automatically remain in either the pledger's or pledgee's account. Non-banking finance companies that lend against unlisted shares have expressed support for the proposed mechanism, which represents a major shift from current practice.

Simplifying Investor Disclosures

SEBI has also proposed replacing the mandatory abridged prospectus with a new Offer Document Summary. Offer documents for IPOs are usually long and complicated, exceeding 500 pages, so the new summary will include essential business information, key risk factors, financial highlights, promoter details and litigation updates. Chairman Pandey said the change is intended to bring critical disclosures directly before investors and make IPO documentation more accessible. 

The summary will be published on the websites of SEBI, stock exchanges, issuers and lead managers. The introduction of the document will also remove the requirement for the abridged prospectus, which will reduce another layer of compliance work for companies.

Market Conditions and Timing

The proposals come at a time of record activity in India’s primary markets. As of November 2024, Indian companies had raised approximately 19.6 billion dollars across 312 IPOs. According to multiple market trackers, India recorded 268 IPOs in 2024 that raised Rs 1.67 lakh crore , which was the highest number globally.

SEBI has invited public comments on the proposed reforms until December 4, 2024 and plans to amend the ICDR Regulations after reviewing the feedback.

Expected Impact 

If adopted, the reforms are likely to shorten IPO timelines and make the listing process smoother for companies. The regulator has maintained that it will not intervene in valuation matters and remains focused on strengthening disclosures at a time when fundraising activity continues to accelerate. The proposals seek to balance operational flexibility for shareholders with appropriate safeguards for promoters and large investors while supporting the growth of India’s capital markets.