Sebi proposes to remove the cap on holding for investors in start-ups post-listing, reduce the minimum investor application size, remove reservation norms for various classes of investors in start-up listing issues
Mumbai: The Securities and Exchange Board of India (Sebi) on Friday proposed a series of relaxations in the existing norms for listing of start-ups, with the aim of encouraging the country’s proliferating entrepreneurs.
The marker regulator proposed to remove the cap on holding for investors in startups post-listing, reduce the minimum investor application size, remove reservation norms for various classes of investors in start-up listing issues, relax the minimum required number of allottees in start-up listing, relax the share lock-in norms post-listing, relax the minimum trading lot-size required for startups post listing, and broaden the definition of start-ups and eligible investors to allow all classes of investors to support start-up growth in the country.
At present, neither the promoter nor any other entity is eligible to hold more than 25% in a start-up after its initial public offering (IPO). In a discussion paper, a Sebi panel formed on 12 June proposed to remove this requirement and relax a number of other norms for institutional trading platform (ITP)—a special platform formed on stock exchanges in line with Sebi’s directions in June 2015, which has proved to be a non-starter so far.
The minimum application size for investing in a start-up IPO has been proposed to be reduced from ₹ 10 lakh to ₹ 2 lakh. The minimum trading lot in shares of a listed start-up, which is required to be ₹ 10 lakh, has now been proposed to be reduced to ₹ 2 lakh and in multiples thereof.
On 9 May 2016, Mint first reported that Sebi was planning a series of changes to norms to help the country’s 3,100-odd start-ups raise capital. On Friday, the Sebi panel proposed that there should be no minimum reservation of allocation to any specific class of investors. At present, in a start-up IPO, 75% of the net offer has to be allocated to institutional investors and the remaining 25% can be allocated to other investors.
The minimum number of share allottees in a start-up IPO too has been proposed to be reduced from 200 to 50.
The Sebi panel proposed to rechristen ITP as Innovators Growth Platform (IGP).
The panel has suggested equitable share lock-in rules in start-ups before their listing on exchanges. Currently, the entire pre-issue capital of the shareholders is required to be locked in for six months from the date of allotment. However, the lock-in is subject to certain exemptions for shares held by VCF/AIF Category I/FVCI and so on. The Sebi panel has suggested that the lock-in of 6 months should apply uniformly to all classes of pre-IPO public shareholders.
“Considering that the framework failed to gain interest, Sebi came up with certain recommendations to make the platform more accessible…Lately, there has been a lot of activity in the start-up space in India and interest has been evinced with regard to listing on the ITP by various stakeholders and industry bodies" the paper said. Sebi has sought public comments on the proposal by 16 November.