These objections have caused delays for several initial public offerings (IPOs), with SEBI advising companies to either adjust how they intend to use the funds or find alternative financing routes to repay promoters, the sources told Moneycontrol under the condition of anonymity.
"While capital market regulations do not specifically prohibit the use of IPO proceeds to repay loans from promoters or promoter groups, SEBI is currently hesitant to approve such documents. However, only a small number of cases have been affected by this issue," one source was quoted as saying by Moneycontrol.
In IPO filings, companies are required to detail how they plan to allocate the raised funds.
SEBI has, in some instances, suggested that companies refinance promoter loans through financial institutions and then use the IPO proceeds to repay these institutions, rather than directly repaying the promoters with the IPO funds.
SEBI has not officially commented yet on the matter, as per reports.
It is common for promoters to support their businesses not only through equity investments but also by providing loans, such as inter-corporate deposits or loans.
In some cases, parent companies of Indian subsidiaries use external commercial borrowings to fund local operations.
Merchant banks have approached SEBI to reconsider its stance, and a meeting is expected soon to explore potential resolutions, reports Moneycontrol, quoting a source, who also noted that while SEBI has previously approved such uses of IPO funds, there are relatively few precedents.