SEBI to relax listing norms for start-ups, rename it innovators growth platform
11, Dec 2018
Prelims level : Mains level :
- In a major push to kickstart listing of start-ups in India in a big way, capital markets regulator Sebi has lined up a slew of relaxations for new-age ventures in sectors like e-commerce, data analytics and bio-technology to raise funds and get their shares traded on stock exchanges.
- The proposed changes include renaming the Institutional Trading Platform that the regulator had created for such listings as Innovators Growth Platform.
The Need for Relaxation of Norms:
- The relaxation came in the wake of demands from various stakeholders to make the norms easier and the platform more accessible considering the expanding activities in the Indian start-up space.
- While there has been a growing interest among the start-ups to get listed, their intention has failed to convert into actual listing due to difficulties in meeting the compliance requirements.
Committee to review the start-up Platform:
- The Securities and Exchange Board of India (Sebi) had set up an expert group in June this year to review the start-up platform.
- The Group held extensive consultations with other stakeholders including start-ups, investors, bankers and wealth management firms and submitted its report to Sebi on the proposed changes.
Proposed Changes of the Expert Committee:
- The group proposed to get rid of the requirement of at least 50 percent of pre-issue capital held by qualified institutional investors.
- It proposed that 25 percent of pre-issue capital for at least two years should be with qualified institutional investors, a family trust with net worth of at least Rs 500 crore, well-regulated foreign investors and a new class of ‘Accredited Investors’ (AIs).
- The AIs are individuals with a total gross income of Rs 50 lakh per annum and minimum liquid net worth of Rs 5 crore, or anybody corporate with a net worth of Rs 25 crore. The AIs can hold up to 10 percent stake before listing.
- The group agreed to do away with a cap of 25 percent holding for any person, individually or collectively, in the company’s post-issue capital. The removal of this cap will ensure that investors are able to invest more than 25 percent in a start-up, thus providing the much-needed boost.
- SEBI also proposed to reduce the minimum application size for share offers to Rs 2 lakh from Rs 10 lakh earlier to attract more investors to the new platform.
- It proposed to do away the allocation of 75 percent of the net offer to institutional investors and the remaining 25 percent to non-institutional investors. There should be no minimum reservation for any specific category of investors.
- It also drops the requirement to limit allocation to a single institutional investor at 10 percent.
- SEBI group retains the existing provisions for lock-in to lend confidence to the entities investing in such a company. The regulations require minimum six-month lock-in of the entire pre-issue capital of the shareholders, excluding the shares arising out of ESOPs and shares held by venture capital funds.
- SEBI proposed to reduce the time period from 3 years to 1 year for the company listed on the start-up platform to the main board of the stock exchange, subject to compliance with the exchange requirements.
- Another key proposal is to fix the minimum offer size at Rs 10 crore.
- These changes are being examined by a sub-group within SEBI’s Primary Market Advisory Committee.