Sebi Relaxes Stance On IPOs With...

As a result, five such companies -- including HDB Financial Services and Hero FinCorp -- which had filed their draft red herring prospectus last year, have recently received regulatory nod for their IPOs.The delay in Sebi's approval, according to people in the know, stemmed from ambiguity over whether a large number of public shareholders, without any prior public fundraising, violated provisions of the Companies Act.

The capital markets regulator has now clarified that a high public shareholder count, by itself, doesn't breach regulations if the company hasn't raised capital through a public offer, the sources said. "The matter is now settled," said one of the people.

"If the company hasn't raised public funds through these share issuances, it's not an issue. Many of these cases involve ESOP (employee stock ownership plan) conversions or unlisted market trades."

At the time of their DRHP filing, HDB Financial had more than 41,500 public shareholders, Hero FinCorp had around 7,500, and Vikram Solar about 7,000. All three have received Sebi approval in the past two weeks. Waaree Energies, which has since listed, had about 2,600 public shareholders when it filed IPO papers.

Separately, the National Stock Exchange -- also eyeing an IPO -- has seen its shareholder base swell to more than 100,000 due to heightened investor interest.

The regulator, according to legal experts, now acknowledges that secondary transfers of ESOP-converted shares, where the company is not involved directly and no capital is raised, do not necessarily violate norms. However, the distinction remains fact-dependent.