Sebi wants auditors to certify utilisation of pre-IPO funds

SEBI has asked for auditor-certified disclosures about utilisation of pre-IPO proceeds towards objects of the issue. If this is not done, the proceeds will have to be attributed or adjusted towards the portion reserved for general corporate purposes (GCP), SEBI’s recent advisory said.

Since companies cannot spend more than 25 per cent of IPO proceeds under GCP, the above rule could take away the flexibility for companies to manage their preIPO proceeds, said experts.

So, if a company does a preIPO that amounts to 20 per cent of the total IPO proceeds, its GCP becomes negligible. For example, for a Rs. 100crore issue, if Rs. 20 crore is raised from pre-IPO, the GCP portion will reduce to Rs. 5 crore (from Rs. 25 crore).

“It will take away the flexibility for companies to manage their own fund proceeds to some extent,” said Munish Aggarwal, Head-Equity Capital Markets, Equirus Group.

“If the company certifies its pre-IPO utilisation, will it be able to use the proceeds the way it wants to? Or can the pre-IPO money be used only towards objects that will be furnished in the offer document? There’s clarity needed on this front,” said an industry official. “If we leave aside the technicalities, what the regulator might be trying to do is bring some control and sanity in terms of where the money raised pre-IPO is being used.”

Bankers have to undertake that pricing and shareholder disclosures will be made on the day of allotment through a public advertisement if any pre-IPO placement is done. A confirmation to this effect should be submitted at the time of filing the updated or red herring prospectus and form part of material documents available for inspection, according to SEBI.