Tips to save IPO listing gains tax!

In the current calendar year so far some 53 companies have raised around Rs 1,12,421.62 crore via their IPO. Of these 5 companies belong to the new economy or as we say internet-based companies. Zomato, CarTrade Tech, Naykaa, PB Fintech and One97 Communications together have mopped up Rs 41,735 crore and many such companies have already filled their DRHP with the market regulator to raise funds via the IPO.

Most of these companies have huge accumulated losses on their books and even the road to profitability is questionable as the RHP of these companies mentioned that their losses will continue, given significant investments expected towards growing business.

That apart most of these IPOs have a sizeable chunk of the money raised to fund unidentified acquisitions. This in turn leads to some amount of ambiguity in the IPO objects and keeps the investors in the dark. Citing this SEBI proposed to prescribe a combined limit of up to 35 per cent of the fresh issue size for deployment on such objects of inorganic growth initiatives and GCP (general corporate purpose), where the intended acquisition / strategic investment is unidentified in the objects of the offer. However, in the case acquisitions are identified and specific disclosures about such investments are made in the offer document the limit will be done away with.

Besides all of these companies are giving a window to early and existing investors like VC, PE to exit their holdings in the company thereby making windfall gain in terms of capital appreciation and transferring the ownership to the general public in a loss-making entity. To address this concern and safeguard the interest of retail investors the regulator has proposed that in the IPOs of companies where there are no identifiable promoters, divestment of stakes by significant shareholders (holding more than 20 per cent) be capped at 50 per cent of their pre-issue holding. Also, for such significant shareholders, including private equity funds, which are selling through OFS in the IPO, their remaining post-issue shareholding is locked in for a period of six months from the date of allotment in IPO. This move will ensure that the retail investor is not dumped with a loss-making unit stock at lofty valuations.

Anchor investors gives a fillip to the issue as investors across all categories consider anchor allotment before investing. According to current rules, a company can allocate 60 per cent of the portion meant for qualified institutional buyers (QIBs) to anchor investors on a discretionary basis, out of which one-third is reserved for mutual funds. This allotment is done a day prior to the issue opening date and anchor investor cannot sell their shares for 30 days after the allotment. SEBI propose an increase in the lock-in for anchor investors in startup IPOs to 90 days from the current 30 days as it will provide more confidence to other investors.