Market regulator SEBI has raised concerns over companies using funds from Initial Public Offerings (IPOs) to repay loans taken by promoters or their associated groups. This move by SEBI has put several IPO applications on hold, as companies are being asked to modify their plans for utilizing the funds. SEBI has been advising companies to use other financial methods for repaying these debts instead of directly using the funds from IPOs.
No Direct Rule But SEBI Changes Stance
Currently, no specific rule in SEBI’s framework directly prevents companies from using IPO money to repay promoter loans. However, SEBI is now signaling its disapproval of this practice, suggesting companies find alternate ways to settle such loans. According to industry insiders, SEBI wants businesses to be transparent about their use of funds when submitting IPO applications and has requested them to explore other financing options.
Companies are advised to refinance promoter loans through banks or financial institutions before using IPO money to repay these loans. This change in SEBI’s stance is causing a delay in the approval of some IPO applications, as the companies must now reassess their financial plans.
Afcons Infrastructure Changes Its IPO Plan After SEBI’s Objection
One prominent example of this issue is Afcons Infrastructure, a Shapoorji Pallonji Group company. Initially, Afcons planned to use ₹100 crore from its IPO proceeds to repay a loan taken from Shapoorji Pallonji Finance Pvt. Ltd., which is part of the promoter group. Following SEBI’s objection, Afcons altered its plan and decided to use the funds to repay a loan from the State Bank of India instead. This move highlights how companies are being forced to rethink their financial strategies under SEBI’s guidance.
Merchant Bankers Urge SEBI to Reconsider
The delay in IPO approvals has led to frustration among some companies and merchant bankers. Merchant bankers have approached SEBI, requesting a reconsideration of the regulator’s new stance on using IPO funds for repaying promoter loans. A meeting is expected to take place soon, where both sides will try to find a resolution to this issue.
SEBI’s objection could lead to a broader impact on companies planning IPOs, especially those that rely on promoter loans for running their business. Some companies take loans from promoters or group entities to maintain operations, using methods like inter-corporate deposits or external commercial borrowings. However, SEBI’s focus seems to be on promoting more transparency and accountability in how IPO funds are used.
SEBI Pushes for Financial Accountability
SEBI’s concern arises from the need to ensure that the funds raised through IPOs are used in ways that benefit the company and its shareholders, rather than paying off internal debts of promoters. By directing companies to restructure their financial plans, SEBI is encouraging more responsible management of public funds.
This regulatory move is seen as a step towards safeguarding the interests of investors and ensuring that IPO money is used for the company’s growth, rather than settling pre-existing debts of promoters. The regulator’s decision, while slowing down some IPO applications, is likely to instill greater trust in the market in the long run.
Future of IPO Approvals
As companies await SEBI’s final decision on this matter, it is clear that the regulator’s new approach is already affecting the IPO landscape. Companies planning to raise funds through IPOs will need to carefully consider how they intend to use the proceeds and ensure they comply with SEBI’s revised expectations.
If SEBI holds firm on its objection, businesses may need to secure alternate sources of funding for promoter loans, potentially leading to an overhaul of financial strategies in the Indian corporate sector.
