[Manisha Soni is a corporate lawyer based in New Delhi, India]
The Securities Exchange Board of India (SEBI) has released a consultation paper on 18 August 2025, proposing sweeping changes in rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957 (SCRR), governing Minimum Public Offer (MPO) and Minimum Public Shareholding (MPS). These rules determine how much of a company’s equity must be offered to the public when listing and how quickly listed companies must reach the 25% MPS threshold.
Since the 2010 amendment in SCRR, the Indian capital market has required an issuer to maintain a 25% MPS to promote free-float, fair price discovery, market integrity and accountability. Under the current framework, mid to large market cap issuers are required to reach the 25% MPS within 3 years from listing, while mega issuers are allowed to gradually attain the 25% MPS mark by achieving 10% MPS within 2 years of listing, and 25% within 5 years of listing.
Despite SEBI’s calibrated approach, an issuer does face challenges in bringing a mega Initial Public Offering (IPO) to market due to limited market absorption of large equity and stringent MPS timelines, with extensions only for PSUs.Promoters are often reluctant to dilute sizeable stakes upfront to meet the 25% mandate, especially when only 3-5% of equity is offered at the IPO. This constrains investment opportunities, and in many cases, discourages corporates from listing in India.
As stated by SEBI, the principal goal of this consultation paper is to bring investor protection in equilibrium with ease of doing business while protecting market integrity. In this post, the author compares the proposed changes with international standards and evaluates their spillover effects and potential in improving the ease of doing business for issuers.
Key Changes Proposed by SEBI
SEBI has proposed the following changes vide this consultation paper:
- Bifurcation of the existing post-issue market cap categories of issuers based on size, with new thresholds.
- Revision of MPO requirement for issuers in line with post-issue market capitalisation, such as:
- INR 50,000 – 1 lakh crores, the MPO to be at INR 1,000 crore and 8% shareholding post-issue.
- for the INR 1–5lakh crore range, the MPO to be INR 6,250 crore with at least 2.75% shareholding.
- For issuers > INR 5lakh crore, the MPO is fixed at INR 15,000 crore, subject to a minimum dilution of 2.5% shareholding.
- Relaxation in 25% MPS timelines: (i) the existing 3-year timeline will now be extended to 5 years. (ii) 15% to be achieved in 5 years and 25% in 10 years from the date of listing, when the public float is <15%, when not, the 25% mark to be achieved within 5 years.
According to SEBI (paragraph 5.4 of the consultation paper), mega IPOs listing with only 10%-15% (avg.) public shareholding have still managed to exhibit healthy liquidity (trading), hence, there was a need for a separate provision of MPS for corporates with significant market capitalisation, and cash reserves that do not need to float 25% of equity in initial years of listing.
Meeting International Standards?
SEBI’s proposal attempts to bring the Indian MPS framework for mega IPOs closer to international standards. The Indian framework to achieve a 25% public float within 3-5 years is stricter than that of the United States of America and Singapore. India has time-bound increases in public float post-listing.
While the U.S. does not have a time-bound statutory minimum public float requirement, exchanges set listing standardsfor publicly held shares, shareholder numbers, and ongoing listing thresholds. For instance, to list on the NasdaqCapital Market, a company must have 1 million publicly held shares worth at least USD 15 million and a minimum of 300 round-lot holders (investors holding shares in trading units). For a direct listing (sale of shares from existing shareholders without involvement of underwriters) on the New York Stock Exchange, a company must have at least USD 250 million in combined public float, or sell at least USD 100 million of newly issued shares during the listing. In addition, issuers should show a broad shareholder base and healthy trading volume of at least 100,000 shares over the preceding six months.
Whereas listing on the Singapore Stock Exchange (SGX) mainboard requires 10% public float with a minimum of 500 shareholders post IPO. Listing on the SGX Catalist Board (a platform for fast-growing companies) requires a minimum 15% public float post IPO with a minimum of 200 shareholders.
U.S. exchanges emphasise a minimum public float value, the number of public shareholders, and liquidity thresholds, while Singapore’s SGX enforces only 10-15% public float with shareholder distribution. Neither the U.S. nor Singapore enforces a rigid timeline for an increase in public holding over time, unlike India’s current framework, which focuses only on staged dilution post IPO.
By introducing longer compliance windows and relaxing the MPS requirement for the initial years post IPO, SEBI attempts to align India more closely with international practice.
Spillover Effects Beyond IPO
SEBI’s consultation paper does not adequately address the spillover effect of the amendment in Rule 19(2)(b) of SCRR to SEBI (Substantial acquisition of shares and takeovers) Regulation, 2011 (Takeover Code). Companies listing with merely 5-10% public float will take nearly a decade to reach 25% MPS (15% in 5 years + 5 years to 25%), letting the promoters hold 85-90% equity for years. This will make hostile takeovers unrealistic because even if the hostile acquirer crosses the 25% mark in the target company, triggering an open offer under the regulation 3(1) of the Takeover Code, it will still not result in overall control of a company, due to the small percentage of public float available to acquire through an open offer. Thus, open offers will become ineffective tools of corporate control if the float remains below 10%.
This brings the need for recalibration of the Open offer in the Takeover Code and the amendments proposed by SEBI in SCRR. The author recommends introducing a “meaningful open-offer” test mechanism, wherein, if public float is less than 10%, it will require a concurrent liquidity event such as a promoter offer for sale or secondary block trade that expands the available supply of shares for public participation. This would ensure that an acquirer is not merely satisfying legal compliance but causing a shift in ownership following the open offer. In addition, India could draw inspiration from Singapore’s 75% Independent approval rule, where approval of at least 75% of independent/minority shareholders is required to protect minorities in takeover and voluntary delisting situations. This ensures that transactions cannot be pushed through against the will of minority investors. Together, it would reinforce the fairness of the takeover regime, protect minority shareholders, and ensure that the combined supply during such offers is sufficient to effect a fundamental change in ownership.
Conversely, with promoter holding at nearly 90%, strategic acquisition, group structuring, and cross-holdings of subsidiaries are now easier for the promoter group, as they can now consolidate subsidiaries post IPO without worrying about the promoter ceiling of 75% shareholding, as the MPS rule is deferred for 10 years. With that, the delisting of a company Under the regulation 7 of SEBI (Delisting of Equity Shares) Regulation, 2021, within a few years of IPO will become easier as promoters crossing above 90% shareholding can delist. This undermines the spirit of IPOs, where investors expect long-term participation opportunities.
Hence, a mandatory post IPO cooling off period should be introduced to prevent delisting when the public float is less than 15%. This will prevent predatory exits and improve market integrity. Alternatively, a veto power for minority shareholders, comparable to the aforementioned “75% independent approval rule” of SGX, could be introduced to protect the minority investors from premeditated delisting.
Concluding Remarks and Suggestions
The proposal significantly eases post-listing obligations in mega IPOs, aligning with international standards. The longer timelines and gradual dilution are a welcome move to incentivise promoters to list their company, balancing investor protection with ease of doing business.
However, the proposal leaves certain gaps that must be addressed to preserve market integrity, such as regulatory clarity, spillover effects on the Takeover Code, risk of delisting and price manipulation, which undermine SEBI’s long-term market participation objective.
To address these concerns, the author suggests that targeted safeguards, such as a “meaningful open-offer” test, are crucial, so that when public float remains below 10%, the acquirer is compelled to trigger a concurrent liquidity event, such as a promoter offer for sale or block trade, ensuring fundamental shifts in ownership. Second, a mandatory cooling-off period should apply to newly listed companies until the float exceeds 15%, preventing premature delisting and protecting investors’ long-term participation expectations. Third, adopting a minority veto mechanism, akin to the SGX’s 75% independent shareholder approval requirement, would reinforce fairness in takeovers and delistings. Finally, SEBI could go beyond percentage-based float requirements and introduce a value-based float and minimum shareholder spread, similar to the Nasdaq and SGX models, to ensure broader and more meaningful market participation.
Ultimately, the success of the reform will depend not only on easing compliance for issuers but also on reinforcing trust in India’s capital markets. By aligning with international standards while protecting investor confidence, SEBI can achieve a more robust and balanced regime that encourages listings without diluting accountability.
– Manisha Soni