To encourage more than 3,100 technology start-ups and new-age companies, the Securities and Exchange Board of India (Sebi) on Tuesday permitted such firms to list on institutional trading platforms (ITP) with an easy disclosure regime allowing them alternative funding options. These firms could be both technology-intensive ones as well as non-technology ventures though the shareholding criteria differ.
In a move that will allow many more companies to raise additional capital, the regulator also lowered the minimum market capitalisation of the public shareholding for fast-track issues to R1,000 crore in a follow-on public offer from R3,000 crore, and R250 crore from R1,000 crore for a rights issue.
Sebi also listed conditions under which promoters could be reclassified as public shareholders in a listed companies. The outgoing promoter will not be allowed to hold more than 10% shares of the company and may also lose special rights like those on voting and veto.
Also, when a new promoter replaces the previous promoter subsequent to an open offer or in any other manner, reclassification shall be permitted subject to approval of shareholders in the general meeting.
The capital markets regulator also fine-tuned the offer for sale (OFS) guidelines but disregarded the government’s suggestion that such sales be held on a Saturday. The new rules are, nevertheless, more helpful. Sebi has also made it mandatory for sellers to allow retail investors to bid at the cut-off price in addition to bids at another price.
Sebi chairman UK Sinha said at a press conference after the regulator’s board meeting, “We have diluted the disclosure guidelines for start-ups since many may not have a track record and also because these will be open to only institutional investors who are better informed.” The minimum investment size for such issues will be Rs 10 lakh.
For start-ups, Sebi has also kept the lock-in period for all pre-issue investors at six months against three years in a traditional initial public offering (IPO). A company is allowed to allot up to 75% of the shares for institutional investors and up to 25% for non-institutional high net-worth individuals (HNIs). The capital markets regulator permitted only qualified institutional buyers (QIBs) and HNIs to invest in these companies, leaving the minimum application size and minimum trading lot size at Rs 10 lakh. Only QIBs with a minimum net worth of Rs 500 crore will be allowed to access the proposed ITP.
“The issue we are trying to address is that most of the start-ups were thinking of listing abroad. They felt the regulatory regime in this country was not favourable for listing so we have made very special provisions for such start-up companies,” the Sebi chief said.
The final rules, which will be notified soon, also state that QIBs will be required to hold at least 25% of pre-issue capital in companies in sectors like technology, information technology, intellectual property, data analytics, biotechnology and nanotechnology to provide products, services or business platforms. Other companies that may want to list on an ITP will need QIBs to hold at least 50% of the pre-issue capital.
Sebi has also removed the cap on the use of proceeds for general corporate purposes. In a traditional IPO mechanism, a company is not allowed to use more than 25% of the issue size for general corporate purposes.
The Sebi board also streamlined the IPO process by making ASBA applications mandatory and also allowing depository participants as well as registrar and share transfer agents to accept IPO applications. At present, only brokers and banks are allowed to accept IPO applications. The aim behind simplifying the IPO mechanism is to reduce the listing time from the existing T+12 days to T+6 days.
“Considering the reach and advantages of ASBA, it will now be mandatory for all investors to make ASBA applications,” Sinha said, adding that new IPO norms will be effective January 1, 2016.
Sinha said Sebi has also assured the government to complete the merger of the commodity futures market regulator Forward Markets Commission with Sebi by end of September. Sebi is reviewing rules, past circulars and notifications of FMC to maintain international standards and is also conducting ‘GAP’ analysis to find holes or limitations in the rules, if any.
Sebi also fine-tuned a section of the OFS guidelines staying with the T-2 day announcement but leaving the T-2 as a banking day instead of a trading day. The subtle change is introduced to help retail investors in arranging funds at short notice. For instance, a company could announce its OFS floor price on Friday and conduct the share sale on Tuesday, as Saturday (banking day) and Monday would be considered T-2 days.
Speaking on the new guidelines for reclassifying promoters, the Sinha said the idea is to make companies operate in a more professional manner. “Shareholders will need to specifically approve whether the outgoing promoter can hold any KMP (key management personnel) position in the company. In any case, the outgoing promoter may not act as KMP for a period of more than three years from the date of shareholders’ approval,” Sinha said.