Regulator okays use of IPO proceeds in subsidiaries

Companies that will raise capital through initial public offerings (IPO) will be able to invest the proceeds in their subsidiaries and associated firms, in a move that the stockmarket regulator opposed before.

The Securities and Exchange Commission backtracked on its stance and approved the recommendations by a regulatory panel on the use of IPO proceeds.

IPO is a process to issue shares to the public to raise capital to expand and run business of a company more efficiently.

Earlier last year, the SEC decided not to allow companies to use IPO proceeds in their subsidiaries or sister concerns.

The market watchdog had taken the decision following allegations of misuse of IPO proceeds.

In February, the regulator formed a two-member panel to examine whether the companies should be allowed to use the IPO proceeds.

The committee, after analysing different rules and the practices in India, recommended that companies be allowed to use the IPO proceeds to invest in subsidiaries and associated firms.

The matter of using IPO funds in subsidiaries or associated companies or in other assets is the discretion of the company to maximise value of issuer company’s shares, the committee said.

Source: The Daily Star, May 7, 2012

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