Reliance Jio, NSE IPOs coming soon? Sebi clears roadblock for mega multi-billion dollar listings

Two of India’s most anticipated IPOs, Reliance Jio Infocomm and the National Stock Exchange, may finally be edging closer to reality, after the Securities and Exchange Board of India (Sebi) proposed to relax listing rules that had long been seen as a stumbling block for such mega offerings.

Under the proposal, companies with a post-IPO market capitalization above Rs 50,000 crore would be required to float at least 8% of their equity, down from the current 10%. For companies valued at more than Rs 1 lakh crore and Rs 5 lakh crore, the mandatory offer would shrink to 2.75% and 2.5%, respectively, compared with 5% at present.

Analysts said the regulator’s proposal to ease minimum public offer norms could remove a key hurdle for Reliance Jio, valued by Citi at over $120 billion (Rs 10.4 lakh crore) in equity. Under current rules, a 5% mandatory float would have forced Jio’s IPO to exceed $6 billion, a supply size considered too large for Indian markets to absorb. Sebi’s proposal to cut the threshold to 2.5% would halve the issue size to just over $3 billion, making it far more feasible.

“A 5% public offer would amount to $6 billion+ of share supply, which is fairly large for the Indian market to absorb, especially as 35% is reserved for retail investors,” Citi analysts Saurabh Handa and Prerna Goenka said. “A 2.5% public offer for Jio would amount to $3 billion+ of share supply, which we believe not only reduces the supply overhang at the time of the IPO but could also limit hold-company discount concerns for RIL.”

The NSE, which is eyeing a market debut next year at a valuation of more than $50 billion, also stands to benefit from the relaxed norms. Bankers say scaling down float requirements could help avoid an IPO glut that drains liquidity from secondary markets.

“It’s a challenge for promoters to create demand for a large public issue. It also sucks out liquidity from the market and causes imbalance,” a senior investment banker told The Economic Times earlier this month.

Sebi’s new framework

Sebi also proposed extending the timeline to meet minimum public shareholding norms. Firms valued above Rs 50,000 crore would get five years instead of three to reach 25% public float. Those above Rs 1 lakh crore could achieve 15% within five years and 25% within 10 years, if their free float is below 15% at listing.

“Mandating substantial equity dilution for meeting the MPS requirements, immediately after the IPO can lead to an oversupply of shares in the market,” Sebi said. “This anticipation of further dilution may impact the share prices, despite strong company fundamentals, and may adversely impact existing public shareholders.”

Other beneficiaries

While Reliance Jio and NSE are the most prominent names, other companies with multi-billion dollar valuations could also benefit. According to a Bloomberg report, Walmart-backed PhonePe is preparing a $1.5 billion IPO at a $15 billion valuation, while Flipkart, also backed by Walmart, may also explore a domestic listing.

Sebi has in the past made exceptions for large offerings. In 2022, it allowed Life Insurance Corp of India (LIC) to sell just 3.5% in its IPO, below the mandated 5%, raising Rs 21,000 crore at a valuation of Rs 6 lakh crore.

Recent mega floats have underlined the challenge of absorbing large issues. Hyundai Motors raised Rs 27,000 crore last year, while Swiggy and NTPC Green pulled in Rs 11,300 crore and Rs 10,000 crore, respectively.

Market outlook

Citi said investors are likely to watch Reliance’s August 29 annual general meeting for signals on a Jio listing, especially in light of Sebi’s proposals.

For India’s equity markets, the regulator’s easing could mark the beginning of a new era of record-breaking IPOs, with Reliance Jio and NSE leading the charge.

Also read | Sebi proposes to ease IPO norms for large companies

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)