According to sources aware of the regulator's action, the Securities and Exchange Board of India (Sebi), which oversees the markets, has begun requesting that companies scheduled for an initial public offering (IPO) remove shareholders who have committed to selling their shares as well as those who own private equity or venture capital (PE/VC) from the decision-making process regarding the IPO's pricing.
As per the sources, Sebi took this action in order to lessen the potential undue impact that these so-called "selling shareholders" may have on the IPO's pricing and, consequently, its performance.
Furthermore, regulator also stated that these shareholders/investors can prioritize pressing for a higher price band in order to maximize their return on investment.
This might affect the company's overall interests or the interests of recently arrived investors who want to subscribe to the initial public offering.
According to reports, Sebi recently commented on the Draft Red Herring Prospectus (DRHP) and stated that it discovered the offer document gave these selling stockholders a seat at the IPO pricing decision-making table.
Indeed, a shareholder who holds a minority ownership in the firm and does not identify as a member of the promoter group may choose to sell their shares during the initial public offering (IPO). This does not always imply that the investor is a venture capitalist or private equity firm.
