SEBI’s Review of MPO and MPS Requirements: Rewiring Large-Cap IPOs

[Pranjal is a student at Bennett University.]

On 18 August 2025, the Securities and Exchange Board of India (SEBI) released a consultation paper suggesting certain changes in harmony with the broader objective of improving ease of doing business when the securities markets in India are at the precipice of volatility. These changes particularly relate to large-cap issuers in the context of easing of minimum public offers (MPO) and minimum public shareholding (MPS), dealt by Rule 19(2)(b) of the Securities Contracts (Regulation) Rules 1957 (SCRR).  

MPS is the minimum float of shares in the market that is mandatorily to be made available to the public in an initial public offering (IPO), while MPS is the minimum percentage of shares of a listed company that is to be held continuously by the public (non-promoter shareholdings) after listing. The MPS and MPO norms promote liquidity and diluted ownership by mandating a certain percentage of public shareholding post listing, which was traditionally set at 25% for continuous adherence and 10% for IPOs. The suggestions, approved in the SEBI board meeting on 12 September 2025, ensure greater flexibility by allowing issuers to launch mega-IPOs without the mandate of significant public dilution at the outset. This also encourages reverse flips into India and increases listing by making it more feasible, especially for large companies. 

This article analyses the recommendations, issues it addresses, and the tension areas from a legal perspective that may adversely affect investor protection and market integrity.

Suggested Reforms

For issues with post-IPO market capitalization (Mcap) of INR 50,000 and less (in respective brackets), the MPO and MPS requirements remain unchanged. However, for large-cap issuers, the substantial dilution of equity required during IPOs discouraged them from listing in India, thus depriving Indian investors of investment opportunities. As a result, the board has suggested flexibility in the following manner:

• If post-issue Mcap is between INR 50,000 crore - INR 1,00,000 crore, MPO of INR 1,000 crore, and 8% of post-issue Mcap is required. 25% MPS is to be achieved within 5 years. 

• For issues exceeding INR 1,00,000 crore but less than INR 5,00,000 crore, the offer stands at Rs.6,250 crore along with a minimum 2.75% dilution. In this case, if public shareholding is less than 15% during IPO, then 15% MPS is to be achieved within 5 years and 25% within 10 years of listing. However, if public shareholding is between 15%-25% during IPO, 25% MPS is to be achieved within 5 years. 

• For ultra-large issuers transcending the threshold of INR 5,00,000 crore, MPO of at least INR 15,000 crore and 1% post-issue Mcap, subject to a minimum dilution of 2.5% is required while MPS in this bracket is the same as that of the previous bracket (INR 1,00,000 crore - INR 5,00,000 crore). 

These suggestions are a result of SEBI’s assessments based on data from previous 5 years of listing trends, concluding that mega-IPOs require value rather than percentage-based floating to prevent excessive supply-induced market fluctuations. It was also found out that for IPOs, 5%-10% public holdings were sufficient for strong trading volumes, taking into consideration the need for listed corporations to have an extensive public float in an appropriate time frame and the large size of IPOs. Even with the flexibility, the doctrinal foundation of at least 25% public ownership as a defense against promoter entrenchment has been sustained. However, the requirement for issuers with less than INR 50,000 crore post-IPO Mcap remains unchanged, which emphasizes India’s stance of hosting trillion-dollar listings resulting in systemic spike in large-cap IPOs by reducing dilution penalty, which has traditionally pushed them towards private funding or overseas exchanges.

Issues Addressed and Resulting Benefits

Majorly, the suggestions revolve around addressing the problem of inelasticity in the primary market in accommodating behemoth IPOs. The rules in place already dealt with MPO and MPS compliance requirements for different brackets of post-IPO Mcap, but the IPOs were frequently impractical or problematic to the secondary market due to the enormous amount of public offerings needed right at the outset for large-cap issuers. It was also difficult for the market to instantly absorb massive public floats without substantial price volatility. The suggested reforms reduce percentage dilution for larger issues by emphasizing a tiered, scale-based dilution obligation.

The extension of timeline to get the ultimate goal of 25% MPS is a pragmatic approach, where lower supply constraints could strengthen secondary market penetration and stabilize bid-ask spread while also enhancing pricing efficiency. An even more remarkable feat is the dual-phase compliance mechanism for ultra-large issuers exceeding INR 1,00,000 crore post-issue Mcap with public shareholding below 15% (5 years and 10 years to attain 15% and 25% MPS, respectively). Consequently, the fundamental principle of 25% MPS  (also recognized in global standards like the US) is mandatory yet progressively realized rather than an urgent short-term requirement. This layered relaxation, which recognizes the practicality of capital markets, is fundamentally an equitable concession incorporated into the legal system. 

Also, such an extension of the timeline provides the issuers with a grace period for organically increasing public holdings through sale in the secondary market or employee stock options. The recommendations are also in line with global standards, like that of Nasdaq’s mandate of 10,00,000 public holdings valued at USD 15 million (which focuses on liquidity metrics), thereby reflecting India’s transition to a quantitative as well as qualitative float model. Due to the ripple effects on mega-IPOs, retail and institutional investor assortments grow, attracting them without the uncertainty of complications after IPOs. The market liquidity rises, with an increase in trading volumes for large-cap offerings, along with increased "reverse flips" which have been observed in recent tech listings, becoming attainable without the threat of demanding dilutions.

Legal Tension Points

The analysis by the board states that pre-IPO public shareholders are already included in MPS (para 3.5.3 of Addendum), but the tension points are the requirement of minimum float, dilution computations, and valuation of pre-IPO shareholdings. To reduce the actual new public float, a company may undertake internal cycles of issuance of stock or reverse mergers to increase pre-IPO public holdings and project it as compliance. Anti-avoidance norm for such colorable compliance is not explicitly addressed in the paper. Also, the definition of “public” given under SCRR becomes a point of contestation since “public” under the said rules means any person other than the promoter, promoter group, subsidiaries, and associates of the company. 

Due to the 10-year runway, shares can be divested in portions by the promoters using legal ways like institutional placement, offer for sale (OFS), or open market sales. This can likely result in superficial compliance where, technically, shares are held by the public but are actually held by select investors who are hospitable to the promoters or group. As a result, the ambiguity allows for a form-over-substance compliance that fulfils the letter of the law but undermines its spirit. Therefore, the risk of governance failure, exit risks, and illiquidity ensue and create problems by shifting the burden of proof to authorities and minority shareholders to demonstrate covert schemes or an absence of legitimate dilution, which only gets worse over the 10-year period.

These recommendations have also undermined provisions in associated laws like the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011 (Takeover Code) by overlooking the fact that such narrow floats of up to 2.75% make open offers practically pointless. Even after 25% acquisition, the major portion remains with the promoters, thereby thwarting competing offers and solidifying family-owned conglomerates. To remedy this, there is a need for complementary amendments like mandatory OFS whenever there are low-float acquisitions. Further, the 90% reverse book-building limit under the SEBI (Delisting of Equity Shares) Regulations 2021 (Delisting Regulations) can be expeditiously achieved within 3-5 years, given high promoter holding post-IPOs and planned cross-holdings within group entities. 

To prevent such hit-and-run IPOs, defense mechanisms like minority shareholders’ veto rights and “float-adequacy tests” based on trading volume, diversified promoter holdings, and retail investor participation should be introduced, as seen in global norms like that of Singapore Exchange’s free float requirement and US exchanges’ emphasis on functional liquidity in the market. Failing such tests, consequences like mandatory secondary sales, temporary cessation of delisting, and increase of floor prices in open offer takeover, reflecting the actual economic value of control, should follow. Absent such collateral reforms, high promoter-holdings for protracted periods may invite class action suits by smaller investors due to cosmetic rather than genuine listing status.

Conclusion

The suggested reforms give flexibility, especially to large-cap IPOs, potentially heralding billions in equity flows into India. Yet tensions relating to its application without amendments in adjacent laws like the Takeover Code and the Delisting Regulations remain unresolved. Since SEBI has recommended that the timelines apply to existing listed entities also, questions of retrospective effects and fairness also arise. To ensure investor protection, stronger governance safeguards should be in place where issuers have low MPS. Measures like mandatory OFS, float adequacy tests, and strict consequences in case of failures may be introduced, in accordance with global standards, to enhance market accessibility for mega issuers and promote market integrity.