The Securities and Exchange Board of India (SEBI) has raised concerns over companies using IPO proceeds to repay loans taken from promoters or promoter-related entities, according to sources. This stance has delayed several IPOs, with companies being asked to revise their plans for fund utilization or seek alternative financing routes for loan repayment, the sources added.
Although SEBI’s capital market regulations do not specifically prohibit using IPO funds to repay loans from promoters or their entities, the regulator has recently declined to approve such transactions. SEBI has instead suggested that companies refinance promoter loans through financial institutions and then use IPO proceeds to repay these institutions.
In IPO documents, companies must clearly state how they intend to use the raised funds. SEBI’s recent objections have led to changes in several IPO plans, including that of Afcons Infrastructure, part of the Shapoorji Pallonji group. Initially, the company planned to use ₹25 crore of its IPO proceeds to repay a loan from Shapoorji Pallonji Finance Pvt Ltd, a promoter group entity. However, following SEBI’s scrutiny, the company revised the plan to repay loans from the State Bank of India instead.
Merchant banks have approached SEBI to reconsider its position, with discussions expected to take place soon. Historically, SEBI has allowed the use of IPO proceeds for promoter loan repayments, but recent cases have prompted stricter oversight.
