Failing to create buzz around startup listing in India, market regulator Securities and Exchange Board of India (SEBI) is looking to again amend existing criteria after initial changes made in 2019. SEBI in a consultation paper titled Review of framework of Innovators Growth Platform (IGP) under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, has now proposed nine changes to the IGP framework based on inputs from startups and other market participants and has sought public comments on the same by January 11, 2021.
In terms of the eligibility criteria, SEBI has recommended reducing the hold period before listing from two years which is perceived as an onerous condition to one year to help startups attracting investors who are inclined to an early listing at the time of investing. SEBI said that this will likely make more startups eligible for IGP listing. The current rule seeks 25 per cent of the pre-issue capital required to be held by eligible investors for two years. “However, there may be a lot of churn of the investors as the start-up goes through various phases. Therefore, the 2 year hold period for eligibility to list on IGP may be difficult to meet as eligible investors would want to get regular exits and may get replaced by new investors.”
Another ask by startups was around exemption to alternative investment fund (AIF)-II category investors from post issue six-month lock-in provided shares are held for a period of one year from the date of purchase. Currently, equity shares held by a venture capital fund or AIF-I investors or a foreign VC, etc., are exempted from the stipulation. SEBI agreeing to this has recommended in the paper that similar to the mainboard where the post issue lock-in requirements are not applicable for AIF-II, provided that the shares are held for a period of one year from date of purchase, the exemption may be provided in IGP framework also.
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Other recommendations included allowing the issuer company to allocate up to 60 per cent of the issue size on a discretionary basis prior to issue opening on the lines of the provisions in the mainboard. SEBI also said that the limit on shareholding of accredited investors (AI) only up to 10 per cent of pre-issue capital — out of eligibility requirement of minimum 25 per cent to be held by eligible investors – may be removed. Also, AIs’ pre-issue shareholding may be considered for the entire 25 per cent of the pre-issue capital required for meeting eligibility condition norms.
Among other changes recommended were allowing issuer companies seeking listing under IGP to be allowed to issue differential voting rights/superior voting rights to promoters or founders. Also, the stipulation of Qualified Institutional Buyers (QIBs) to hold at least 75 per cent of the total issued capital to migrate to the mainboard may be reduced to a lesser threshold of 40 per cent since post listing on IGP “it is a very stringent requirement that 75 per cent of the capital is held with QIBs.” BSE had received SEBI approval in December 2018 to launch the BSE Startups platform. So far seven startups are listed.