Sebi asks companies for accurate details on end use of IPO funds
money through initial public offerings (IPOs) will have to give accurate details of the end use of the funds.
The Securities and Exchange Board of India (Sebi) has increased scrutiny of IPO disclosures and, in several cases, asked companies to revise their issue documents as it observed funds are being used for purposes different from those listed in the application to the regulator. This is being done to avoid a longer lock-in of promoter shareholders' shares mandatory after an IPO.
Currently, if most IPO proceeds are to be used for capital expenditure, then the lock-in for the promoters' shares is 36 months. But if the IPO-bound company states that the objective is for loan repayments, then the lock-in is only for 18 months.
Sebi noticed that although a company may declare in the offer documents that the IPO money will be used for loan repayments, it gets used for capex requirements.
«If it's a term loan, then the share lock-in can't be 18 months, promoters will have to go for a three-year lock-in,» said a person familiar with the development, Sebi has started to informally tell companies to comply with the rules, he said.
Even if a new loan has been taken to repay an existing loan but the underlying loan has been for financing capex, the lock-in for shares of promoters must be 36 months, the person said.
If the IPO proceeds are used for working capital requirements, then the lock-in can be for 18 months, the person said.
«Sebi has started asking companies for details about their loans, their borrowing
