The Securities Exchange Board of India (SEBI) has objected to the use of funds raised through Initial Public Offer (IPO) to repay the loan of the promoter or promoter group. Market regulator SEBI has asked many companies applying for IPO to change the purpose of using their IPO funds.
Along with this, companies have also been asked to resort to other financial mediums to repay promoter loans. Due to this, many IPO applications are getting delayed in getting approval. This information has been received from media reports.
At present, there are no rules that prevent a company from using IPO funds to repay the loan of the promoter or promoter group. However, SEBI no longer wants to approve such applications. However, due to this, only a few applications are stuck.
Do not pay promoter loans directly by taking funds from the Initial Public Offer (IPO)
While applying for an IPO, companies have to make it clear how they are going to use the funds. In some cases, SEBI has asked companies to first refinance the promoter loans from financial institutions and then use the IPO funds to repay the loans of those institutions, rather than taking money from the IPO and directly paying the promoter loans.
Many companies also run their business by taking loans from the promoter group
Many companies also run their business by taking loans from the promoter group, which includes methods like inter-corporate deposits or loans. This is a general procedure. In some cases, foreign companies resort to external commercial borrowing to fund their Indian units.
Afcons changed its Initial Public Offer (IPO) funding plan after SEBI’s instructions.
After SEBI’s objection, many merchant banks have appealed to it to reconsider its stand. A meeting is likely to be held this week to resolve this. At the same time, Shapoorji Pallonji Group’s construction company Afcons Infrastructure has changed its IPO funding plan after SEBI’s instructions.
Earlier, the company had planned to use Rs.100 crore from the funds raised from the IPO to repay the loan of Shapoorji Pallonji Finance Private Limited. Shapoorji Pallonji Finance is considered a promoter group company. However, after SEBI’s objection, now this fund will be used to repay SBI’s loan.
