SEBI May Lower IPO Public Float Requirement to 2.5% for Large Firms

The Securities and Exchange Board of India (SEBI) is currently evaluating a proposal that could significantly ease initial public offering (IPO) norms for large companies. As per a report by The Economic Times, the proposal under discussion would allow firms with a valuation exceeding ₹1 lakh crore to dilute just 2.5% of their equity, rather than the current mandatory 5%, while still raising a minimum of ₹7,500 crore through an IPO.

Presently, SEBI’s rules require such large companies to offer at least 5% of their equity in the public market and raise a minimum of ₹5,000 crore. If the proposed changes are approved, the equity dilution requirement will be halved, but the fundraising threshold will increase, allowing companies to collect more capital while releasing fewer shares to the public. The move is seen as a way to balance market demand with the capital-raising needs of large firms, especially in an environment of high valuations and evolving investor appetite.

This regulatory shift could directly benefit several high-profile firms preparing for public listing, including the National Stock Exchange (NSE), Reliance Jio Infocomm, PhonePe, and Flipkart. For instance, NSE is expected to go public in 2026 with a valuation exceeding $50 billion. Similarly, Reliance Jio, valued at over $150 billion, is a likely IPO candidate. Walmart-backed PhonePe and Flipkart are also gearing up for potential listings, possibly in the Indian market.

The proposal is being reviewed by a sub-group within SEBI’s primary market advisory committee. Sources familiar with the discussions suggest the panel is inclined to recommend the new rule, citing broad consensus among committee members that promoters should have the flexibility to dilute less equity in public offerings.

The rationale behind this move is to provide an exit path for early investors without exerting excessive pressure on the stock market or the company's share structure. According to a top investment banker, large firms often do not need a substantial influx of fresh capital, but they do need to provide liquidity to early backers. Conducting an IPO with a smaller equity dilution still gives retail and institutional investors access to high-quality companies while allowing the company to meet regulatory norms over time.

SEBI has allowed similar exceptions in the past. A notable example was the IPO of Life Insurance Corporation (LIC) in 2022. Although the general rule required a 5% equity float, the government was permitted to offload only 3.5% of LIC’s shares. LIC, with a valuation of ₹6 lakh crore, managed to raise ₹21,000 crore through the offering. Additionally, SEBI had allowed LIC to bypass the standard lock-in period for anchor investors, indicating its willingness to adapt rules for large and strategic IPOs.

Challenges faced by promoters when launching massive IPOs include difficulties in generating sufficient demand and potential disruption of market liquidity. Large issues may absorb too much capital from the market, causing imbalances. The revised rules could ease these concerns by allowing for more manageable offerings.

Several large IPOs over the past year have demonstrated the scale of capital raised: Hyundai Motors raised ₹27,000 crore, Swiggy raised over ₹11,300 crore, NTPC Green secured ₹10,000 crore, and HDB Financial Services raised ₹12,500 crore just last month. For any IPO exceeding ₹10,000 crore, direct approval from the SEBI chairman is required.

In conclusion, if implemented, SEBI’s proposed relaxation could facilitate more flexible and efficient listings for large companies, aligning public market requirements with capital needs and investor expectations, while easing the burden on both promoters and the financial markets.