Securities and Exchange Board of India, on May 18, 2024, issued the amendments to the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (SEBI ICDR) in the official gazette. The consultation paper introduced critical amendments to the SEBI Issue of Capital and Disclosure requirements, which helped pave the way toward the ease of issuance of the public issue for raising capital from the market to meet the project's financial needs. These amendments were crucial for India's growing economy, where businesses require constant funding from the public or investors. This article seeks to understand and analyze these amendments.

Key Amendments to the Regulation

1. Non-Individuals now in the ambit of Minimum Promoters Contribution (MPC):

   Pursuant to the amendment, non-individuals are now also permitted to contribute to the Minimum Promoters Contribution (MPC). SEBI has revised the earlier Minimum Promoters Contribution ambit. Earlier, only alternative investment funds, foreign venture capital investors, scheduled commercial banks, public financial institutions, or insurance companies registered with the IRDA were allowed to contribute to the Minimum Promoters Contribution (MPC) subject to the limit of a maximum of 10 percent of the post-issue capital without being identified as promoters of the issuer but now pursuant to the amendments SEBI has now permitted other members of the promoter group both individual shareholders and non-individual shareholders holding at least five percent of the post issue capital, to contribute towards the Minimum Promoters Contribution (MPC) in case there is a shortfall.
   
   This amendment would only be applicable when an issuer has an identifiable promoter, as the requirement for Minimum promoter contribution does not arise in the case of an issuer without an identifiable promoter.
   
   1. Critical analysis of the amendment
      This amendment would benefit in diversifying the concentration of shareholding from the promoters to the other members of the promoter group. This will ease access to funding for companies by expanding the pool of potential investors beyond promoters of the issuer.
      
      However, this amendment also comes with its own set of complexities. Including non-individual investors in the ambit of Minimum Promoter Contribution (MPC) could dilute the control of the promoters in the company, shifting the power dynamics and control within the company. Investors, whether institutional investors or non-individual shareholders, although not much involved in the daily operation of the company, yield a substantial influence on the company's decisions. This influence may cause hindrances to the company's operation in major areas such as a merger and amalgamation, issue of sweat equity, buyback of shares, major investments, corporate governance, approval for ESOPs, etc. Conflicts of interest are also more likely to arise, especially if these non-individual investors have diverse business interests. Their interest may not always align with the goals and the decisions of the company, leading to a tussle between them.
       
   2. What is Minimum Promoter Contribution, and why is it so Crucial in a Public Issue
      Minimum Promoter Contribution is the Minimum contribution that a promoter of a public issue is mandated to contribute by the Securities and the Exchange Board of India (SEBI), failing which the issue fails. SEBI mandates a promoter of an issue to contribute at least twenty percent of the post-issue capital, although he can invest more in the issue if he desires. In both cases, the MPC would be subject to certain lock-in requirements.
      
      The minimum promoter contribution (MPC) requirement ensures that the promoter has a significant stake in the company's success. By mandating promoters' contributions, SEBI ensures that the promoters are personally vested in the company's success.
      
      This demonstrates the promoter's confidence in the business. By requiring promoters to contribute to the Minimum Promoters Contribution (MPC), SEBI ensures that the promoters share the financial risk with the public investors. If the business does not perform as expected, the promoter will also face a financial burden, which encourages them to act in the best interest of the company and its shareholders.
      
      It also safeguards against promoters offloading their risk entirely on the shareholders or the investors. MPC ensures that the promoters also have their funds involved in the public issue and are not merely using the public issues as a means to exit the company or raise funds without personal accountability. Requiring promoters to maintain a substantial stake in the company encourages them to focus on the company's long-term standing. This can prevent short-term decisions aimed solely at benefiting the promoters at the expense of the shareholders.
       

2. Regulation on the Compulsorily Convertible Securities:

   Under the earlier ICDR Regulations, Compulsorily Convertible Securities (CCS) held for more than a year before the filing of the Draft Red Herring Prospectus (DRHP) were not considered for inclusion toward the Minimum Promoters Contribution (MPC). However, the amendment now permits the compulsorily Convertible Securities (CCS) held for more than a year to be considered for inclusion toward MPC, provided full disclosures regarding the terms of conversion are included in the Draft Red Herring Prospectus (DRHP) and the securities are converted into equity share before the filing of the Red Herring Prospectus (RHP).
    
   1. Critical analysis of the amendment
      This is a curial amendment that is introduced by SEBI to keep India's growing stock market in view, which requires constant funding from the public or investors. This amendment will help the issuer of the public issue make up the Minimum Promoter Contribution (MPC) in case there is any shortfall that may result in the failure of the public issue.
       

3. Extension of the bid in case of a period of subscription:

   The new amendments resulted in an amendment to Regulation 266. Under the earlier ICDR Regulation, in case of revision of the price band, the issuer of the public issue was mandated by the Securities and Exchange Board of India (SEBI) to extend the issue period disclosed in the red herring prospectus (RHP) for a minimum period of three working days subject to the provisions of sub-regulation (1). The option to extend the bidding period has enabled potential investors to bid even when they have been impacted by such a force majeure event.
    
   1. Critical analysis of the amendment
      Pursuant to the amendment, the requirement has been reduced to a minimum of one working day. This would help reduce unnecessary delays in the IPO process and release the funds of potential investors without much delay.
       

4. Material Price Movement:

   Prior to the amendment, the floor price for private placements (including preferential allotment) was determined using a formula defined by SEBI, which did not account for any fluctuation in the share price resulting from market rumors. However, SEBI has established a framework to take into account the unaffected price of equity shares of the issuer in accordance with its latest circular dated May 21, 2024, provided that the listed issuer confirms the market rumors within twenty-four hours after the trigger of material price movement.
    

5. DRHP Refiling Trigger:

   The new amendment inserted in schedule XVI, paragraph (1), subparagraph (f), i. in item (i), A. after the words "in estimated issue size" and before the words "by more than twenty," the words and symbols "(in Rupee value)." It also provided that the words "of the estimated issue size" appearing after the words and symbol "by more than twenty percent." shall be omitted. It is also inserted in item (ii), after the words "the estimated issue size" and before the words and symbol "by more than fifty percent." the words and symbols "(in Rupee value), whichever is disclosed in the draft offer document."

Prior to the amendment, in case there was any increase or decrease in the estimated issue size disclosed in the Draft Red Herring Prospectus by more than twenty percent, in case of a fresh issue by the issuer, and by more than fifty percent in case of an offer for sale, it would trigger the threshold for the refiling of the Red Herring prospectus. Since disclosures in different transactions would differ, it was unclear in the earlier SEBI ICDR regulations if this modification would be evaluated in terms of the number of shares or amounts in rupees.

In accordance with the amendment, SEBI has now made it clear through the amendment to the SEBI Issue of Capital and Disclosure Requirement (ICDR) that the fresh issue size adjustment will be evaluated based on rupee value. Since disclosures in different transactions would differ, it was unclear if this modification would be evaluated in terms of the number of shares or amounts in rupees.

In accordance with the amendment, SEBI has made it clear that the fresh issue size adjustment will be evaluated based on the rupee value. For example, without requiring a refiling, a Fresh issue size of INR 100 crore (Indian Rupees One Hundred Crores Only) at the DRHP stage may decline to INR 80 crore (Indian Rupees Eighty Crores Only) and may increase to INR 120 crore (Indian Rupees One Hundred and Twenty Crores Only).

In the case of an Offer for Sale (OFS) of equity shares, it will be determined on the basis of unit value disclosed in DRHP, i.e., 100 (one hundred) OFS shares at the DRHP stage (if disclosed as such) can move up to 150 (one hundred and fifty) shares or move down to 50 (fifty) shares regardless of the price per equity share. This change would remove any ambiguity around testing the refiling triggers at the DRHP stage. As a result, providing issuers and selling shareholders with a degree of confidence.

Conclusion
The latest amendments by SEBI demonstrate a business-friendly stance and willingness to change in response to market demands. Especially for modern businesses that are in constant need of funding and investments through convertibles to meet their funding needs, the inclusion of CCS towards MPC and the extension of the scope of eligible individuals/entities to contribute towards MPC, including non-individual shareholders and other members of promoter group entities, have been long awaited. These amendments by SEBI shed light upon SEBI's willingness to facilitate ease of doing business.

This is evident from the SEBI amendments in the ICDR, where there's a careful balancing act between the expansion of the market and a facilitation climate for easy capital flows into the market. The step taken to expand the minimum contribution by a promoter by including non-individual investors would lay the ground for a more investment-friendly environment. This would further the growth and development of the market as Indian practices are brought in line with global standards and hence more appealing to a wider spectrum of investors. However, these changes in the regulation also beg questions of corporate governance and decision-making processes.

Including non-individual shareholders has changed the power game, and the market has to remain vigilant to ensure that the 'new entrants' cannot take away control over the companies' long-term objectives and strategic alignment. To sum it up, the reforms by SEBI are a progressive step towards modernizing the financial markets in India. By assimilating international best practices and adapting them to the particular requirements of the Indian market, SEBI is not only making doing business easier but also creating the framework for a more resilient and inclusive investment environment.