SEBI Plans Softer Dilution Norms for Giant IPOs
Relaxed MPO & MPS Rules Proposed
SEBI Plans Softer Dilution Norms for Giant IPOs
Relaxed MPO & MPS Rules Proposed
1. Introduction
A company planning a mega IPO in India today faces a dilemma. On one hand, regulations require a sizeable portion of shares to be offered to the public and for promoters to steadily reduce their stake to meet minimum public shareholding (MPS). On the other hand, when a company’s market cap runs into several lakh crores, pushing such large volumes of stock into the market can be impractical. It may depress prices, affect liquidity, and discourage issuers from listing domestically.
In the present Consultation Paper, SEBI attempts to address this tension by proposing calibrated relaxations for very large issuers.
2. Current
Framework
Under Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957 (SCRR), companies must comply with specific thresholds for Minimum Public Offer (MPO) at the time of listing and thereafter reach MPS levels within defined timelines. The existing structure is broadly:
MCap > 1,00,000 Cr 5000 Cr and at least 5% of the post issue share capital
MPS of 10% to be achieved in 2 years and 25% within 5 years from the date of listing
Note: All values except for those expressed as % are in Rs.
3. Why is a Review Needed?
Feedback from large issuers highlighted several issues:
a) A company with Rs. 5,00,000 crore post-issue market cap must float shares worth Rs. 30,000 crore under current rules. Such an issue is difficult to absorb.
b) Anticipation of future large-scale dilution to meet MPS may suppress valuations.
c) Large, cash-rich, or stable businesses may not need to raise capital regularly, making forced dilutions unnecessary.
d) These often find the timelines impractical.
4. SEBI’s Proposed Changes
4.1.
Bifurcation of Market Capitalisation Thresholds
Currently, issuers fall into broad market capitalisation slabs, which directly determine their Minimum Public Offer (MPO) size and timelines for achieving Minimum Public Shareholding (MPS). When these slabs are too wide, companies at the lower and upper ends of the same bucket face very different obligations, often leading to impractical dilution requirements.
To address this, SEBI has proposed to sub-divide the thresholds so that obligations are more proportionate to the actual size of the issuer.
4,000 Cr < MCap ≤
1,00,000 Cr
50,000 Cr < MCap ≤
1,00,000 Cr
MCap > Rs. 1,00,000 Cr Rs. 1,00,000 Cr < MCap ≤ Rs. 5,00,000 Cr
MCap > Rs. 5,00,000 Cr
4.2. Revision of MPO for Issuers with Market Cap Between Rs. 50,000 Cr and Rs. 1,00,000 Cr
For companies with a post-issue market capitalisation above Rs. 50,000 crore but not exceeding Rs. 1,00,000 crore, SEBI has proposed to reduce the Minimum Public Offer (MPO) requirement. Instead of the current mandate of 10% of post-issue share capital, such issuers would be required to offer at least Rs. 1,000 crore and a minimum of 8% of post-issue share capital.
4.3. Revision of MPO for Issuers with Market Cap Above Rs. 1,00,000 Crore
The SEBI has proposed a new framework for Minimum Public Offer (MPO) requirements for very large issuers, replacing the existing mandate of Rs. 5,000 crore and at least 5% of post-issue share capital. The revised thresholds are:
a) Rs. 1,00,000 Cr < Market Cap ≤ Rs. 5,00,000 Cr
Minimum Public Offer of Rs. 6,250 crore, with at least 2.75% of post-issue share capital
b) Market Cap > Rs. 5,00,000 Cr
Minimum Public Offer of Rs. 15,000 crore, with at least 1% of post-issue share capital, subject to a minimum dilution of 2.5%.
4.4. Extension of MPS Timeline for Issuers with Market Cap Between Rs. 50,000 Cr and Rs. 1,00,000 Cr
For companies with a post-issue market capitalisation above Rs. 50,000 crore but not exceeding Rs. 1,00,000 crore, SEBI has proposed to extend the timeline
for achieving Minimum Public Shareholding (MPS) of 25%. Instead of the current requirement to meet this threshold within 3 years from listing, such issuers would be allowed 5 years from the date of listing to comply.
4.5. Extended MPS Timelines for Issuers with Market Cap Above Rs. 1,00,000 Crore
For companies with a post-issue market capitalisation exceeding Rs. 1,00,000 crore, SEBI has proposed differentiated timelines for achieving Minimum Public Shareholding (MPS), based on the level of public holding at the time of listing:
a) If public shareholding is less than 15% at listing
Increase public shareholding to 15% within 5 years. Then, increase further to 25% within 10 years.
b) If public shareholding is 15% or more at listing
Increase public shareholding to 25% within 5 years.
4.6. Applicability of Extended Timelines to Existing Listed Entities
SEBI has proposed that the benefit of extended timelines for achieving Minimum Public Shareholding (MPS) should also apply to companies already listed but yet to comply, in the following manner:
a) Issuers still within current timelines: Those who have time left under the existing framework, but have not yet reached the required MPS, may use the extended timelines.
b) Issuers already non-compliant: Entities that have crossed the existing deadlines but would fall within the new extended timelines may also avail the relaxation. However, fines or penalties imposed by stock exchanges will continue to apply for the period of non-compliance until the new rules take effect.
c) Calculation of extended period: The extended timelines will be counted from the date of listing of the entity’s shares.
4.7. Retail Quota in IPO Allocations
In its earlier consultation paper dated July 31, 2025, SEBI had proposed reducing the retail quota in IPOs exceeding Rs. 5,000 crore from 35% to 25%, citing execution challenges in very large issues.
After further review, the SEBI has now proposed to address these concerns by easing of the MPO requirements for large issuers instead. Accordingly, the retail quota will continue at 35%, in line with Regulation 32 of the SEBI (ICDR) Regulations, 2018. The earlier proposal of July 31, 2025 stands modified to this extent.
5. Illustration – Minimum Public Offer (MPO) and Minimum Public Shareholding (MPS)
Post-Issue Market Cap
Rs. 10,000 Cr 10% = Rs. 1,000 Cr No change
within 3 years No change
Rs. 50,000 Cr 10% = Rs. 5,000 Cr No change 25% within 3 years No change
Rs. 80,000 Cr 10% = Rs. 8,000 Cr
Rs. 2,00,000 Cr
Rs. 10,00,000 Cr
Rs. 5,000 Cr + 5% = Rs. 15,000 Cr (7.5%)
Rs. 5,000 Cr + 5% = Rs. 55,000 Cr (5.5%)
6. Conclusion
Rs. 1,000 Cr + 8% of Rs. 80,000 Cr = Rs. 7,400 Cr 25% within 3 years 25% within 5 years
Rs. 6,250 Cr (2.75%) = Rs. 5,500 Cr 10% in 2 years, 25% in 5 years
Rs. 15,000 Cr (1%), with minimum dilution of 2.5% 10% in 2 years, 25% in 5 years
If <15% at listing → 15% in 5 yrs, 25% in 10 yrs. If ≥15% → 25% in 5 yrs
If <15% at listing → 15% in 5 yrs, 25% in 10 yrs. If ≥15% → 25% in 5 yrs
SEBI’s proposals are aimed at aligning regulatory requirements with the realities of India’s mega issuers. Companies like Life Insurance Corporation of India (LIC) and Hyundai Motor India Limited have already shown that very large IPOs attract substantial investor participation, yet forcing them to dilute aggressively under existing norms risks oversupply, price volatility, and reduced appetite for domestic listings.
By introducing graduated thresholds for MPO and longer timelines for MPS compliance, SEBI is signalling flexibility for issuers such as LIC, Hyundai, Bajaj Housing Finance, and NTPC Green Energy — all of which feature in the recent list of large IPOs. At the same time, by retaining the 35% retail quota, SEBI ensures that small investors remain a central part of the capital markets story.
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