Securities and Exchange Board of India’s (Sebi) second attempt to formulate regulations for a separate trading platform for technology start-ups and new age companies has largely received positive response from various sections of the capital markets industry in India. The capital markets regulator had tried to make a similar platform in October 2013 but failed to take-off.
The new rules announced on Tuesday will facilitate many companies to raise equity with minimum disclosures and greater flexibility to raise funds from ‘sophisticated investors’. While the exact appetite is not immediately known, experts say about two dozen companies may begin the process for a listing on the new platform, including the likes of popular e-commerce companies like Flipkart and Snapdeal.
Sebi may take about two weeks to notify the final guidelines, which will offer greater clarity to companies and various stakeholders on their future course of action.
“Sebi was naturally concerned that companies are looking to list abroad instead of listing in India. The final rules will offer a boost for the startup industry in India. The US is also trying to formulate a similar platform to encourage listing of startups; this only reflects the kind of appetite for investments in new-age companies, not just in India but globally,” said Harish HV, partner, Grant Thornton India.
On Tuesday, Sebi announced final guidelines by proposing an institutional trading platform (ITP) with an easy disclosure regime allowing them alternative funding options to technology start-ups and new-age companies in the technology-intensive as well as non-technology ventures.
Only qualified institutional buyers (QIBs) and high net-worth individuals (HNIs) will be allowed to invest in such companies. Sebi has kept the minimum application size and minimum trading lot size at R10 lakh as proposed in the discussion paper. QIBs with a minimum net-worth of R500 crore to be able to allowed to access the proposed ITP.
“Startups in India have received significant investments from private equity and venture capital firms in the recent past, and it is great that these companies will have access to capital markets in India. The regulations announced by Sebi are positive and very timely. My understanding is that the issuance process will similar for all IPOs including on this platform so it will naturally be a few months before we see the first listing on this new platform.” said Gesu Kaushal, executive director, Kotak Investment Banking.
The capital markets regulator also removed the cap on the use of proceeds for general corporate purposes. In a traditional initial public offering (IPO) mechanism, a company is not allowed to use more than 25% of the issue size for general corporate purposes. In addition, Sebi has also kept the lock in period for all pre-issue investors at six months as against three years in a traditional IPO.
“Sebi has been pro-active and the rules appear positive for the start-ups industry in India. Any new platform will face new challenges before we can assess the kind of response it receives. Having said that, there are a handful companies that are eligible to raise funds through this route and may be looking at ITP as an option. At present, ITP and Grex are the only two equity-based platform that offer fund raising options to startups in India.” said CEO of Grex.