BackSebi proposes changes to start-up listing norms
The capital markets regulator expands the categories of investors, suggests easing of restrictive clauses on shareholding pattern
Premium
Mumbai: The Securities and Exchange Board of India (Sebi) on Friday proposed easier regulations for start-up companies that want to raise funds from the capital market.
A discussion paper released by the markets regulator has suggested easing of restrictive clauses on the shareholding structure of a firm that wants to raise money.
It proposed allowing non-institutional investors to subscribe to a higher portion of the offer and reducing the trading lot size.
The move comes a year after Sebi proposed a start-up listing platform that would allow India’s 3,100-odd early-stage firms to raise money from the primary market. But the concept never took off, owing to these clauses.
Start-ups and bankers were also concerned about the ability of Indian investors to judge the value of early-stage companies and the liquidity on this alternative trading platform.
Mint reported on 26 June that Sebi was considering amendments to these rules. According to the Sebi discussion paper, it proposes to do away with the restriction that persons acting in concert (PAC) cannot hold more than 25% of the post-issue capital. “The cap of 25% was a major hindrance as the rules for start-up listing are different. There is always a high possibility based on the valuation and funding need of the start-up that a PAC could hold more than 25%," said Raja Lahiri, partner at Grant Thornton LLP, a tax and consultancy firm.
PACs in this case would typically be promoters who, while wishing to raise money, wouldn’t like too much dilution of their shareholding.
Sebi is also proposing to allow higher allotment of share to non-institutional investors such as high net worth individuals (HNIs). The current norms stipulate this category of investors receive only up to 25% allotment and the rest be given to qualified institutional buyers (QIBs) such as banks and mutual funds. The new proposal will allow HNIs to be allotted 50%. These are the only two categories allowed in start-up companies’ share sales.
The third tweak proposed by Sebi is halving the trading lot (after listing) to ₹ 5 lakh.
Apart from this, Sebi has also proposed easing the criteria for the capital holding structure of companies in pre-listing stage. Earlier, the regulations required that QIBs hold at least a 25% stake in technology companies and a 50% stake in all other companies, if these firms wanted to list in this platform.
Apart from QIBs, the shareholding of other categories such as trusts, non-banking financial firms and foreign institutional investors would be considered.
The regulator also proposed compulsory market making for at least three years for start-ups that raise less than ₹ 100 crore to address liquidity concerns.
“These are enabling measures but getting a start-up to list on the platform needs a vibrant ecosystem, where the exchanges will play a big role to get investors and companies attracted towards listing," said Lahiri. The start-ups that are allowed on this listing platform include those that are technology-intensive, focused on intellectual property, data analytics, biotechnology or nano-technology, and offer products, services or business platforms with substantial value addition, according to Sebi’s definition.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
