Home >Market >Stock-market-news >Sebi may relax norms for firms eager to list on national bourses

Mumbai: At least 2,000 companies, struggling to stay afloat in the listed space, may finally get a breather. The Securities and Exchange Board of India (Sebi) is about to introduce norms that will allow companies migrating from defunct regional bourses to raise capital through private stake sales and become eligible to list and trade stocks on national exchanges such as the BSE and the National Stock Exchange (NSE).

To be able to list on a national bourse, companies require higher paid-up capital and net worth and need to comply with stricter listing norms. Under the norms, if a company listed on an existing/derecognized stock exchange wants to get directly listed on a national trading platform, it needs a minimum issued and paid-up capital of Rs1 crore and a minimum net worth of Rs3 crore.

At present, companies in the dissemination board of exchanges are prohibited from disturbing their capital structure till the time the company complies with the listing norms of national exchanges or decides to liquidate its business to exit the listed space altogether.

A dissemination board provides an 18-month window for exclusively listed firms to either get listed on a national stock exchange or sell their businesses to another party.

Two persons familiar with Sebi’s policymaking processes confirmed that the market regulator may allow companies migrating from defunct regional bourses to raise capital through private stake sales and remain publicly listed companies.

“Sebi has received a large number of requests from the market to allow these companies to raise capital to be able to get listed on nationwide exchanges. If the company, while being on the dissemination board, makes an effort to raise sufficient capital to achieve the capital and net worth requirements, it indicates that the promoters indeed want to grow its business, trade the company’s stock publicly and allow every class of shareholders to equitably unlock the true potential of the business, which is supported by Sebi," said one of the two persons cited above.

The principle is to work in the interest of common investors, protect market integrity and improve liquidity, he said. “So, once the 18-month period on the dissemination board gets over, an additional time of six months or a year could be given to these companies to raise capital to achieve the minimum capital and net worth to get listed," the person added.

According to Sudhir Bassi, executive director at law firm Khaitan and Co., “A Sebi circular earlier said the companies which want to list on nationwide stock exchanges cannot disturb their existing capital structure till the time of compliance. It was a catch-22 situation that on one hand the company is required to list but on the other hand the company cannot change its capital structure. But if Sebi is now taking a measure to allow these companies to raise capital from investors, it is positive and a step in the right direction. This will help companies to move to a liquid trading platform, which will benefit all classes of shareholders."

“Sebi is examining a number of issues and the new norms will ensure that it neither hurts the investor’s interest nor stifles the growth of companies whose promoters are genuinely trying to stay listed. The norms should be ready and announced in a month’s time," the second person cited above said.

Both persons spoke on condition of anonymity as they are not authorized to talk to the media. An e-mail sent to Sebi for the story did not elicit a response.

The first person said most of the 2,000 firms on the dissemination boards of BSE and NSE had been suspended from trading since they do not comply with the capital and net worth norms.

“Sebi may allow these firms to raise capital through private placements such as preferential allotments and QIPs (qualified institutional placements) to raise enough capital to be able to move to the trading platform of nationwide exchanges. But if a company fails to comply with the listing norms even after the additional time, it will be directed to compulsorily make an exit offer to shareholders within the subsequent 3-6 months. If the company neither complies with the listing rules nor provides exit to the investors, strict penal action will be initiated by Sebi," the person said.

Many companies which moved from dissemination boards to trading platforms are now doing well, Bassi said.

“They are attracting decent investor interest because they have a sound business. But, in my opinion, at least 12-18 months should be given to these firms to raise the required capital," he said.

“Net worth is a function of capital, reserves and profits. So, it will be a better idea if Sebi allows companies, which do not have negative net worth, to get listed on the nationwide exchange by just complying with the share capital criteria first. Additional time should be given to comply with the net worth criteria because once the stock is listed on a liquid trading platform it will be easier to find more investors, which will help in meeting the net worth criteria. Sebi should also consider allowing such companies to get listed on the SME trading platform and then comply with the net worth criteria to be able to move to the main board of the exchange," Bassi added.

Following the exit of 18 regional exchanges since 2014, around 3,000 companies were moved to the dissemination boards of nationwide stock exchanges such as BSE and NSE, since they failed to get listed on the latter.

In January 2015, Sebi said that firms exclusively listed on exiting regional stock exchanges will be given 18 months to get listed on nationwide stock exchanges and till the time of listing, such firms could be moved to the dissemination board of a nationwide stock exchange.

Around 1,000 firms from the dissemination boards either got directly listed on nationwide bourses or exited their businesses altogether.

On 25 May, outlining the priorities for 2016-17, Sebi chairman U.K. Sinha had said that the regulator will attempt to significantly reduce the number of listed entities as thousands of them are either under suspension or very thinly traded.

As per the plan, Sebi will ask companies that have been suspended from trading for over seven years to delist from the exchanges by giving an exit option to investors. Such companies are typically suspended from trading for non-compliance with rules. Technically, they are still listed and can resume trading if they become compliant. There are about 1,200 such entities, Sinha said.

However, for companies that migrated from defunct exchanges to the dissemination boards of nationwide exchanges, there are no norms in place to be followed after the 18-month period. Sebi’s new norms will stipulate ways to deal with shareholders of companies in the dissemination boards, the timeline for such companies to get listed, the exit offer mechanism for companies in the dissemination boards and the regulatory action against promoters of non-compliant companies.

The Hyderabad Securities and Enterprises Ltd (erstwhile Hyderabad Stock Exchange), Coimbatore Stock Exchange Ltd, Saurashtra Kutch Stock Exchange Ltd, Mangalore Stock Exchange, Inter-Connected Stock Exchange of India Ltd, Cochin Stock Exchange Ltd, Bangalore Stock Exchange Ltd and Ludhiana Stock Exchange Ltd are among the 18 regional bourses that have been granted approval to exit exchange operations.

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