In a bid to ease execution risks and attract more mega listings, India’s capital markets regulator has proposed a new five-slab framework for initial public offerings (IPOs), cutting minimum public offer (MPO) sizes and relaxing shareholding norm deadlines for issuers above ₹50,000 crore in market cap.
The Securities and Exchange Board of India (Sebi) on Monday floated a consultation paper that proposes splitting thresholds into five bands: ₹4,000 crore– ₹50,000 crore, ₹50,000 crore– ₹1 trillion, ₹1 trillion– ₹5 trillion, and above ₹5 trillion. This replaces the existing broader buckets that top out at over ₹1 trillion.
The consultation paper will be open for public comments till 8 September.
For the ₹50,000 crore– ₹1 trillion band, Sebi has proposed an MPO of ₹1,000 crore and at least 8% of post-issue equity, replacing the current 10% requirement for all issuers above ₹4,000 crore. For ₹1 trillion– ₹5 trillion, the MPO would be ₹6,250 crore and at least 2.75%. For issuers above ₹5 trillion, the MPO would be ₹15,000 crore and at least 1% dilution, with a hard floor of 2.5% equity to be offered.
The regulator has also proposed easing of timelines to reach minimum public shareholding (MPS) for the larger cohorts. Issuers in the ₹50,000 crore– ₹1 trillion band would get five years to reach 25% public shareholding, versus three years now.
For issuers above ₹1 trillion, if public shareholding on listing is below 15%, they must reach 15% within five years and 25% within 10 years; if it is above 15% at listing, the 25% threshold must be met within five years.
Sebi said very large issues are hard for the market to absorb at once, and forcing rapid follow-on dilution can create an overhang that weighs on share prices, even for fundamentally strong companies.
“Large issuers face challenges in undertaking substantial dilution of equity shares through IPOs, as such large offerings may be difficult for the market to absorb,” the paper said, adding that this could deter big companies from listing domestically.
Presently, issuers that dilute 5–10% at IPO must offload an additional 15–20% within five years. The challenge is especially acute for cash-rich, profitable companies that are not in a high-growth phase, and for PSUs that struggle to meet current timelines.
Illustratively, for a ₹10 trillion issuer diluting 2.5%, the IPO would be ₹25,000 crore; depending on the price, 16.7–50 crore shares would be available for trading on day one, comfortably above the minimum free-float counts seen in large-cap indices, the paper said.
In a key change from a 31 July consultation paper, Sebi has proposed to retain the retail quota at 35% for IPO allocations, dropping the earlier idea to reduce it to 25% for issues above ₹5,000 crore, arguing that the new MPO framework addresses execution challenges without trimming retail participation.
The regulator has also proposed extending the new MPS timelines to existing listed companies that haven’t met current thresholds: those still within their permitted window can move to the revised schedule, while those already non-compliant may also switch, with penalties continuing to apply until the changes come into force.
Experts said the proposal undeniably eases execution for very large IPOs, making them marketable without excessive equity surrender.
At the same time, such thin floats could hamper liquidity and impair post-listing price discovery, Hardeep Sachdeva, a senior partner at AZB & Partners said. “Extending the timeline to reach a 25% public stake over 5-10 years injects welcome flexibility, smoothing issuance pressures and minimizing forced selling,” Sachdeva said.
The view was echoed by Rohit Jain, managing partner at Singhania & Co. “Lowering the MPO for large issuers will likely reduce execution risk. Mega IPOs often face the challenge of market absorption. A smaller initial offer size is easier for the market to digest, reducing the risk of undersubscription and a failed IPO,” Jain said, adding that the consultation lands amid heightened chatter around potential mega listings, including the widely-discussed IPO of Reliance Jio.
On the flip side, the regulator’s proposals bring the risk in sustaining the momentum in terms of liquidity and investor enthusiasm. Sachdeva said that Sebi “must carefully guard against prolonged low float and include interim milestones or disclosures to maintain investor protection and healthy market participation; and ensure real price discoveries”.
Ketan Mukhija, a senior partner at Burgeon Law also sounds caution. “Sebi’s proposals lower the entry barrier for mega-cap IPOs and sensibly stagger public shareholding, but with only 2.5–8% float at listing and timelines of up to 10 years, the challenge will be to sustain liquidity, ensure fair price discovery, and maintain investor confidence,” Mukhija said.
