IPO in India: Companies are manipulating rules to launch IPO, SEBI increased strictness

IPO in India: Companies are manipulating rules to launch IPO, SEBI increased strictness

Sebi Scrutiny: The number of companies launching IPO in the stock market is increasing rapidly. Companies are eager to be a part of the continuous boom in the Indian economy. Due to this, many IPOs are entering the market every month. Now those who want to launch IPO will have to deal with the strictness of SEBI. Market regulator SEBI has decided to make the rules for scrutiny of IPO documents more stringent. SEBI has recently rejected the IPO papers of about 6 companies. 

IPO documents of 6 companies returned 

Reuters, quoting sources, has claimed that SEBI is being more cautious regarding the increasing number of IPOs in the market. Therefore, the scrutiny of IPO papers has been increased. This is the reason why IPO documents of 6 companies have been returned. In its investigation, SEBI had found that these companies were misleading about the reasons for raising money through IPO. Due to the boom in the stock market, about 50 companies had launched IPOs (Initial Public Offering) in the year 2023. This year too, so far 8 IPOs have come in the market. Also 40 are awaiting approval from SEBI. 

She was not giving the true reasons for bringing IPO 

According to Reuters, sources said that when SEBI found out the reasons for raising money by these companies, they became suspicious. Investigation revealed that these companies were not giving the correct reasons for bringing IPO. Therefore their IPO proposals were returned. SEBI wants to know the real reason for raising money so that investors do not face any problem. 

These are the rules for spending money 

As per SEBI rules, the money raised through IPO can be used for various purposes like capital expenditure, debt repayment, meeting corporate needs and acquisitions. If the money has to be used to repay the loan, then the shares of the promoters and big shareholders have to be locked for 18 months. If this money is to be spent for capital expenditure then the lock in period becomes 3 years. 

Manipulation to reduce lock in period 

According to sources, companies are claiming that they will use the money to repay the loan so that their lock-in period becomes 18 months. However, she actually wanted to use this money for capital expenditure. Therefore, SEBI is now asking for complete details to repay the loan so that it can be known how much and how the loan will be repaid. Earlier this month, SEBI had announced that it was investigating 3 IPOs for increasing the subscription number. SEBI Chairperson Madhabi Puri Buch said that measures are being taken to remove such irregularities.

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