Sebi Relaxes Norms to Boost Start-Ups

Market regulator Securities and Exchange Board of India (Sebi) has announced a series of rule changes aimed at encouraging start-ups to list, including reducing the holding period for pre-issue capital and enabling discretionary allotment to eligible investors.

According to two separate notifications released on Wednesday, amendments to the process for listing on the Innovators Growth Platform (IGP) have been introduced. This comes after the Sebi board of directors accepted a proposal in this regard in March. Other changes include relaxing the requirements for delisting and easing the rules for migrating to the main board.

In light of the emerging start-up ecosystem, this is aimed at making the platform more available to businesses. The regulator has reduced the requirement for eligible investors to retain 25 per cent of the issuer company's pre-issue capital for one year instead of the previous requirement of two years. For the purposes of IGP, the word "Accredited Investor" has been renamed "Innovators Growth Platform Investors." In contrast to the current maximum of 10 per cent, such an investor's pre-issue shareholding will be considered for the entire 25 per cent of the issuer company's pre-issue capital.

On the lines of provisions for a listing of companies on the main board, Sebi said the issuer company on the IGP would be allowed to allocate up to 60 per cent of the issue size on a discretionary basis prior to issue opening for subscription to eligible investors with a lock-in of 30 days on such shares. This is subject to that the price of the specified securities offered to eligible investors would not be lower than the price offered to other applicants and eligible investors would make an application of a value of at least Rs 50 lakh. Currently, the issuer company is not permitted to make discretionary allotment.

According to Sebi, issuer companies that have given superior voting rights (SR) equity shares to promoters and founders will be permitted to list under the IGP scheme, in accordance with the provisions of main board IPO. In addition, the threshold trigger for open offers has been lowered from 25 per cent to 49 per cent.

However, irrespective of acquisition or holding of shares or voting rights in a target company, any change in control directly or indirectly over the target company will trigger an open offer, Sebi said. An issuer company whose specified securities are traded on the IGP pursuant to an initial public offer may exit from the platform if such an exit is approved by the board of directors of the company in its meeting, Sebi said.

Further, the regulator said that such an exit is approved by the shareholders of the company by a special resolution passed through postal ballot or e-voting, after disclosure of all material facts in the explanatory statement sent to the shareholders in relation to such resolution.

The delisting would be considered successful if the post-offer acquirer or promoter shareholding, taken together with the shares tendered and accepted, reaches 75 per cent of the total issued shares of that class; and at least 50 per cent shares of the public shareholders are tendered and accepted.

Further, for delisting, Sebi said the Reverse Book Building mechanism will not be applicable, and for computation of offer price, the floor price will be determined in terms of takeover regulations, along with delisting premium as justified by the acquirer/promoter. In addition, it has eased the framework for companies seeking to migrate to the main board.

Currently, for a company not satisfying the conditions of profitability, net assets, net worth among others for migration from IGP to main board requires a company to have 75 per cent of its capital held by QIBs as on the date of application for migration. This requirement has now been reduced to 50 per cent, Sebi said.

To give effect to this, Sebi has amended ICDR (Issue of Capital and Disclosure Requirements) Regulation and SAST (Substantial Acquisition of Shares and Takeovers) norms. The new rules have become effective from May 5, as per the notifications.

In 2015, Sebi introduced the Institutional Trading Platform (ITP) with a view to facilitating the listing of new-age start-ups. However, the ITP framework failed to evince interest. Last year, Sebi renamed it the Innovators Growth Platform.