Mon Sep 30 19:20:12 UTC 2024: ## SEBI Opposes Use of IPO Funds to Repay Promoter Loans
**MUMBAI:** The Securities and Exchange Board of India (SEBI) has raised concerns about companies using funds raised through Initial Public Offerings (IPOs) to repay promoter loans. The market regulator has asked several companies applying for IPOs to alter their proposed use of funds and explore alternative financial sources to repay promoter loans. This has led to delays in approving several IPO applications, according to media reports.
While there are currently no specific regulations prohibiting companies from using IPO proceeds to repay promoter loans, SEBI is now actively discouraging this practice. While this has only affected a few applications so far, it is likely to have a significant impact on future IPOs.
SEBI has been asking companies to first refinance promoter loans through financial institutions and then use the IPO funds to repay those institutions, rather than directly repaying the promoter loan with IPO funds. Several companies rely on loans from their promoter groups, including inter-corporate deposits or loans, which is common practice. Some foreign companies also use external commercial borrowings to fund their Indian units.
Following SEBI’s objections, several merchant bankers have appealed for a review of the regulator’s stance. A meeting is expected to be held this week to address the issue.
F-Con, a construction company part of the Shapoorji Pallonji group, has already amended its IPO funding plan after SEBI’s intervention. Initially, the company intended to use ₹100 crore from the IPO proceeds to repay a loan from Shapoorji Pallonji Finance, a promoter group company. However, following SEBI’s objection, the funds will now be used to repay a loan from SBI.
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