Sebi Objects To Use IPO For Promoter Loan Repayments

The Securities and Exchange Board of India (SEBI) has raised objections to companies using proceeds from initial public offerings (IPOs) to repay loans taken from promoters or promoter entities, according to media sources. This stance has resulted in delays for multiple IPOs, as companies are now required to change their plans for fund utilisation or explore alternative financing routes for repaying promoters.

Though current capital market regulations do not explicitly prohibit using IPO funds to settle promoter loans, Sebi has withheld approvals for IPO documents on these grounds in some cases, sources stated. Sebi has reportedly advised some companies to first refinance promoter loans through financial institutions and then use the IPO proceeds to clear those obligations, rather than directly repaying promoters.

It's common for promoters to support their businesses through loans such as inter-corporate deposits or external commercial borrowing, especially in cases where an Indian subsidiary is funded by its foreign parent firm.

Merchant banks have approached Sebi to reconsider this stance, and a meeting is expected this week to resolve the matter.