Companies are repaying promoter’s loan by raising funds from IPO: Market regulator SEBI expressed objection, many IPO applications stuck.

Securities Exchange Board of India i.e. SEBI has objected to the funds raised through Initial Public Offering (IPO) being used to repay the loan of the promoter or promoter group. Market regulator SEBI has asked many companies applying for IPO to change the purpose of using their IPO funds.

Besides, companies have also been asked to take recourse to other financial mediums to repay the promoter loan. Due to this, many IPO applications are getting delayed in getting approved. This information has been received from media reports.

At present, there are no rules that prevent a company from using IPO funds to repay the loan of the promoter or promoter group. But SEBI is no longer willing to approve such applications. However, due to this only a few applications are stuck.

Pay promoter loan directly by taking money from IPO While applying for IPO, companies have to make it clear how they are going to use the funds. In some cases, SEBI has asked companies to first refinance the promoter loan from financial institutions and then use the IPO funds to repay the loan of those institutions, rather than taking the money from the IPO and paying the promoter loan directly.

Shapoor Pallonji Group’s construction company Afcons Infrastructure changes its IPO funding plan following SEBI directions

Many companies also run their business by taking loan from the promoter group. Many companies also run their business by taking loans from the promoter group, which includes methods like inter-corporate deposits or loans. This is a general procedure. In some cases, foreign companies resort to external commercial borrowing to provide funding to their Indian units.

Afcons changes IPO funding plan following SEBI instructions After SEBI’s objection, many merchant banks have appealed to it to reconsider its stand. A meeting is likely to be held this week to resolve this. Whereas Shapoor Pallonji Group’s construction company Afcons Infrastructure has changed its IPO funding plan following the instructions of SEBI.

Earlier, the company had planned to use ₹100 crore of the funds raised from the IPO to repay the loan of Shapoorji Pallonji Finance Private Limited. Shapoorji Pallonji Finance is considered a promoter group company. However, after the objection of SEBI, now this fund will be used to repay the loan of SBI.