Objects of the Issue in an IPO: Reading Where the Fresh Money Is Really Going

Every IPO prospectus has a section that most retail investors scroll straight past. It sits after the risk factors and before the valuation tables, and it answers the only question that matters about a fresh issue: what is the company going to do with our money? That section is called the objects of the issue, and in an IPO it is where a company stops talking about its vision and starts putting rupee amounts against specific uses.

Read it properly and you can tell, within ten minutes, whether an IPO is funding a new plant, paying off old loans, or mostly letting existing shareholders cash out. This guide walks through what SEBI requires in that section, the limits it puts on vague spending, how the money is tracked after listing, and a worked example you can copy for the next red herring prospectus that lands in your inbox.

What “objects of the issue” means in an IPO

When a company files its offer document, the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, usually called the ICDR Regulations, tell it what it has to disclose about its plans for the money. Schedule VI of those regulations lists the objects of the issue first under “Particulars of the issue”, followed by the requirement of funds, the funding plan, the schedule of implementation and the deployment of funds.

One point needs to be clear before anything else. Only the fresh issue part of an IPO goes to the company. If the IPO also has an offer for sale, that money goes to the promoters or investors who are selling their shares. We’ve covered that split in detail in our guide to fresh issue vs offer for sale. So the objects section is really about the fresh issue. A ₹1,000 crore IPO that is ₹900 crore offer for sale has only ₹100 crore of objects to talk about.

The usual buckets you’ll see

Most Indian IPOs spread the fresh money across a handful of familiar uses. Each one comes with its own disclosure checklist under Schedule VI, and knowing the checklist tells you what to look for.

Capital expenditure on a project

New plants, new stores, new machinery. If buying plant, machinery or technology is an object, the company has to give a table with the equipment, its cost, the supplier, the date the order was placed and the expected supply date. If orders haven’t been placed yet, it must say which quotations the estimates rely on and show, in percentage and value terms, how much of the equipment is still unordered. Schedule VI also lists unplaced orders for plant and machinery as a risk that has to be disclosed.

This is one of the most useful tables in the whole document. A company that has already placed orders for most of its equipment has a plan. A company with the bulk still at the quotation stage has an intention.

Repaying or prepaying loans

Very common, and not automatically a bad sign. When loan repayment is an object, the company must disclose the lender’s name, the brief terms and the amount outstanding, along with a certificate from the statutory auditor on how the loan was used when it was taken. Lower debt cuts interest cost and can lift profits after listing. But the money isn’t building anything new, and you should price the IPO with that in mind.

Working capital

If part of the money is meant for long-term working capital, the company has to show the basis of its estimate, the assumptions behind it, why it needs extra working capital, and a projected break-up of inventory, receivables and current liabilities with holding-period assumptions for each. Read the holding norms closely. If the company assumes customers will suddenly pay much faster than they have in the past, the working capital need can be made to look smaller or larger than it really is.

Investments in subsidiaries, joint ventures or acquisitions

Here the company must state the form of investment, whether equity, debt or something else, or say plainly that it hasn’t decided. For debt, it has to give the interest rate, security, repayment terms and subordination. It must also explain what benefit it expects from the investment. Where the acquisition target hasn’t been identified, the company has to disclose how the money will be used in the meantime and the probable date of completing the acquisition.

General corporate purposes and issue expenses

The last two lines in most tables. Issue expenses have to be broken down item by item: lead manager fees including underwriting commission, brokerage and selling commission, registrar fees, legal advisers, advertising and marketing, regulator and exchange fees, printing, and anything else. General corporate purposes, or GCP, is the flexible bucket, and that’s where SEBI draws hard lines.

The objects table tells you how much of your subscription money will build something new, how much will clean up the past, and how much is simply a blank cheque with a cap on it.

SEBI’s limits on vague money

Three caps in Regulation 7 of the ICDR Regulations matter for a mainboard IPO. All are measured against “the amount being raised by the issuer”:

• General corporate purposes cannot be more than 25% of that amount.
• GCP plus money earmarked for acquisitions or investments where the target hasn’t been identified cannot together be more than 35%.
• Within that, the unidentified acquisition or investment portion alone cannot be more than 25%.

The last two limits fall away if the acquisition or strategic investment has been identified and specific disclosures about it are made in the offer document. So a company that names its target gets more room. A company that wants a war chest for “future acquisitions” gets boxed in.

The regulations also stop companies from gaming the definition. GCP includes any identified purpose with no specific amount allocated to it, and issue expenses can’t be treated as part of GCP just because no amount was allocated for them. In plain terms, if a use isn’t priced in the table, it counts against the GCP cap.

There is one more condition worth knowing. For a specific project funded from the issue, the company must have firm arrangements of finance, through verifiable means, for 75% of the stated means of finance, leaving out the amount raised through the IPO itself and existing identifiable internal accruals. If a project needs bank debt as well as IPO money, that debt should be lined up, not hoped for.

A worked example: reading the table line by line

Let’s take a hypothetical company, call it Sahyadri Components, coming to market with a ₹1,200 crore IPO. The numbers below are made up for illustration only. The IPO is a ₹800 crore fresh issue and a ₹400 crore offer for sale by an early investor. The objects table for the fresh issue reads like this:

Step 1: check the caps. We’re measuring against the ₹800 crore the company itself is raising, since the ₹400 crore offer for sale goes to the selling shareholder. GCP is ₹70 crore, or 8.75%, well under 25%. GCP plus the unidentified acquisition money is ₹190 crore, or 23.75%, under 35%. The unidentified acquisition money alone is 15%, under 25%. The table passes.

Now suppose the company had instead wanted ₹150 crore for GCP and ₹160 crore for unnamed acquisitions. That’s ₹310 crore, or 38.75% of the fresh issue, which breaks the 35% limit. It would have to cut one of those lines or name the target.

Step 2: separate growth money from everything else. Capex and working capital add up to ₹390 crore. That’s 48.75% of the fresh issue but only 32.5% of the full ₹1,200 crore IPO. In other words, of every ₹100 investors put in, about ₹32.50 goes into new productive assets and operations. About ₹33.33 goes to the selling investor (₹400 crore out of ₹1,200 crore), and the rest goes to loan repayment, a possible future acquisition, GCP and costs.

That isn’t a verdict on the IPO. A company that repays expensive debt can still be a good buy. But it changes how you should think about valuation. If the price band assumes a big jump in earnings, check how much of that jump depends on the ₹300 crore plant, and when the plant is due.

Step 3: check the plan behind the plant. Go to the equipment table and the schedule of implementation. Schedule VI asks for the implementation schedule in a table, covering land acquisition, civil works, installation of plant and machinery, trial production and the date of commercial production, with reasons for any delay. If the land isn’t bought yet and only a small share of the machinery has been ordered, commercial production in 18 months is a hope, not a timeline.

Step 4: look at money already spent. The offer document must show sources and deployment of funds already spent on the project, certified by the statutory auditor as of a date not earlier than two months from the filing of the offer document. It must also disclose any bridge loan that will be repaid from the IPO proceeds. A large bridge loan is effectively a loan repayment object dressed up as capex, so add it to Step 2’s “everything else” pile.

Step 5: read the related-party lines. Schedule VI requires details of any material existing or anticipated transactions with promoters, the promoter group, directors, key managerial personnel, senior management and group companies in using the proceeds or in the project cost. If the plant is being built by a promoter’s construction company, or the “unidentified” acquisition turns out to be a promoter-owned business later, that’s where the clue first appears.

What happens to the money after listing

Before the money is spent, net proceeds pending use for the stated objects can only be parked with scheduled commercial banks. The offer document has to say so.

After listing, Regulation 41 brings in a monitoring agency. If the issue size, excluding the offer for sale, is more than ₹100 crore, the company must appoint a credit rating agency registered with SEBI to monitor how the money is used. Banks, public financial institutions and insurance companies are exempt. The agency reports every quarter until 100% of the proceeds have been used. The board and management must comment on its findings, and the company has to publish the report on its website and file it with the stock exchanges within 45 days of each quarter end.

In our example, Sahyadri’s fresh issue of ₹800 crore is well above ₹100 crore, so it needs a monitoring agency. Under Schedule XI, the report has to say whether money was used differently from the stated objects, and whether any such use was approved by shareholders. It also gives a range of deviation in bands: up to 10%, 10-25%, 25-50%, 50-75% and 75-100%.

We’d suggest bookmarking the company’s investor page and reading the first two or three of these reports after listing. They take five minutes and they tell you whether the plant is actually getting built.

The monitoring agency report is the one document that checks the prospectus against reality, quarter after quarter, until every rupee is accounted for.

When a company wants to change its objects

Plans change. A company may find a better site, drop a project, or want to use the plant money elsewhere. Under Regulation 59 and Schedule XX of the ICDR Regulations, read with sections 13(8) and 27(2) of the Companies Act, 2013, a change in objects needs a special resolution, and in certain cases the promoters or controlling shareholders must offer to buy out shareholders who voted against it.

That exit offer applies only to public issues that opened after April 1, 2014, and only when both conditions are met:

• At least 10% of the shareholders who voted in the general meeting dissented, and
• The amount to be used for the original objects is less than 75% of the amount raised, counting the GCP amount disclosed in the offer document.

It doesn’t apply where there are no identifiable promoters or shareholders in control. Only dissenting shareholders who held shares on the relevant date, which is the date of the board meeting that approved the proposal, can take the offer.

The exit price is the highest of four numbers: the volume-weighted average price paid by the promoters or persons acting with them for acquisitions in the 52 weeks before the relevant date; the highest price they paid for any acquisition in the 26 weeks before it; the volume-weighted average market price over the 60 trading days before it, if the shares are frequently traded; and, if they aren’t, a price set by the promoters and lead managers using valuation measures such as book value and comparable trading multiples.

Back to our hypothetical Sahyadri. Two years after listing, the board wants to move ₹240 crore of the plant money into a new line of business. That leaves ₹560 crore of the ₹800 crore for the original objects, which is 70%, below the 75% line. If 12% of the votes cast go against the resolution, both tests are met and the promoters must make an exit offer. Say the promoters’ 52-week VWAP for acquisitions was ₹410, their highest acquisition price in 26 weeks was ₹432, and the 60-trading-day VWAP on the exchange was ₹455. The shares are frequently traded, so the exit price would be ₹455, the highest of the three. All of these prices are made up for the example.

A ten-minute checklist for the next IPO

• Find the fresh issue and offer for sale split first. Everything else is measured against the fresh issue.
• Work out what share of the total IPO is going into capex and working capital. That’s your growth money.
• Check GCP and unidentified acquisitions against the 25% and 35% caps, and ask why a company is close to them.
• Read the equipment table: what percentage of machinery is still not ordered?
• Look for bridge loans that will be repaid from the IPO.
• Scan the related-party transactions linked to the proceeds.
• Note the issue expenses as a share of the issue size.
• After listing, read the monitoring agency reports for the first few quarters.

The objects section won’t tell you whether an IPO is cheap or expensive. It tells you what you’re actually paying for. Put it next to the business and valuation sections of the draft red herring prospectus, and for the wider process from application to listing, our guide to IPO investing in India pulls it all together.

Disclaimer: This article is for educational purposes only and is not investment advice. Sahyadri Components is a hypothetical company, and every amount, price and voting figure in the worked examples is made up for illustration; the percentages were calculated by us. Regulatory requirements are summarised from the SEBI ICDR Regulations, 2018, as amended up to March 21, 2026, and can change. IPO investments carry risk. Please read the offer document and consult a SEBI-registered investment adviser before making any investment decision.