SEBI Simplifies IPO Norms for Large Companies With Flexible Dilution Rules

The Securities and Exchange Board of India (SEBI) has announced plans to relax IPO regulations for major issuers, aiming to attract more valuable companies to the domestic market. Reduced diluting pressure and more flexibility in adhering to minimum public shareholding (MPS) regulations are the goals of these modifications.

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Lowering the Minimum Public Offer Thresholds

SEBI’s consultation paper outlines a tiered approach to the Minimum Public Offer (MPO) requirement:

• Companies with a post-issue market capitalisation between ₹50,000 crore and ₹1 lakh crore can offer a minimum public share of 8% or at least ₹1,000 crore, down from the earlier 10%.
• Those with valuations between ₹1 lakh crore and ₹5 lakh crore face a required dilution of 2.75% or ₹6,250 crore.
• For mega-cap firms—valued over ₹5 lakh crore—the MPO drops further to 2.5% of post-issue equity or ₹15,000 crore, with a floor of 1% dilution.
• The shift aims to make Indian IPOs more viable for large issuers by mitigating challenges posed by oversupply.

Extended Timeline for Shareholding Compliance

To ease regulatory pressure, SEBI has also proposed extending the timeframe to meet the MPS requirement of 25%:

• Businesses valued below ₹1 lakh crore will get five years (up from three) to comply.
• Larger entities, depending on their public float at listing, may get up to ten years to reach MPS, although a quicker five-year path applies if the public holding is already above 15%.
• This phased approach ensures large issuers aren’t rushed into excessive dilution.

Retail Investor Quota Retained

Importantly, SEBI has decided to retain the 35% retail quota in IPOs, reversing earlier plans to reduce it to 25% for large issues. This underscores the regulator's commitment to safeguarding retail participation amidst changing IPO structures.

Why the Change Matters

According to SEBI, large IPOs burden the market with high dilution, which may suppress valuations. By allowing smaller floats and longer timelines, the regulator intends to support India’s capital market growth while reducing barriers for large firms to list domestically.

Public feedback on the consultation paper is invited until September 8, 2025, after which formal rule changes may follow.

Conclusion

The proposed revisions from SEBI aim to strike a balance between the need to attract high-profile initial public offerings (IPOs) to India and maintaining market stability by gradually relaxing dilution rules and extending compliance deadlines. The regulator is paving the way for a more flexible market entrance for mega corporations by maintaining retail access and promoting initial public offerings (IPOs) as simpler to understand.