SEBI proposes relaxed norms for startup listing; will allow more investor categories, ease shareholding norms

To make the listing on bourses more attractive for startups, markets regulator Securities and Exchange Board of India (SEBI) Friday came out with a new set of proposals that would allow more investor categories, relax shareholding norms and reduce trading lot amount.

In this regard, SEBI has mooted changes to the framework of Institutional Trading Platform (ITP), which has not seen much traction even though it was put in place in August 2015.

Since the framework failed to evince interest, SEBI came up with certain recommendations through a discussion paper in July 2016 to make the platform more accessible. Also, considering the lukewarm response in the platform, no amendments to the norms were made.

However, lately, there has been a lot of activity in the startup space in India and interest has been evinced with regard to listing on ITP by various stakeholders and industry bodies, according to SEBI.

In view of this trend, the regulator constituted a group in June 2018 to review the ITP framework and identify the areas which require further changes.

Issuing the draft papers Friday, the regulator has proposed to rename the Institutional Trading Platform (ITP) as Innovators Growth Platform (IGP).

In order to be eligible for listing on ITP, SEBI has proposed increasing the category of eligible investors when it comes to shareholding before the listing.

It has proposed that 25 percent of the pre-issue capital should be held by Qualified Institutional Buyers (QIBs) or other regulated entities or accredited investors (AIs) for at least two years. Out of this, not more than 10 percent should be held by AIs.

Besides, QIBs, a family trust with net-worth of more than Rs 500 crore, category III FPIs (Foreign Portfolio Investors) should be made eligible.

SEBI also proposed that entities such as those having a pooled investment fund with minimum assets under management of USD 150 million and those from a jurisdiction that is signatory to the International Organisation of Securities Commission’s Multilateral MoU should qualify for holding 25 per cent of the pre-issue capital.

The market watchdog has defined AIs as any individual with total gross income of Rs 50 lakh annually and who has minimum liquid net worth of Rs 5 crore or any body corporate with net worth of Rs 25 crore.

The regulator has suggested tweaking the share allocation limit in entities listed on the platform. It is proposed that there should not be any minimum reservation of allocation to any specific category of investors and allocation should be on a proportionate basis.

At present, 75 percent of the net offer to public should be allocated to institutional investors and the remaining 25 percent to non-institutional investors.

In case of discretionary share allotment to individual institutional investors, the watchdog has proposed allocation to investors on a proportionate basis, without any reservation. At present, ceiling is 10 percent of the issue size for discretionary allotment.

Another proposal is to do away with the current requirement that no person, individually or collectively, should have more than 25 percent of the listed entity’s post-issue capital.

As per the discussion paper, minimum trading lot is to be reduced to Rs 2 lakh from existing Rs 10 lakh. Besides, minimum number of allottees will be decreased to 50 from the present 200 and minimum lock-in period of six months for the entire pre-issue capital would be made applicable on all categories of shareholders.

SEBI also proposed that the new platform be designated as a main board platform for startups with an option to trade under regular category after completion of one year of listing.

Currently, an entity listed on ITP may migrate to the main board after expiry of three years from the date of listing.

The discussion paper on review of framework for ITP, open to public comments till November 16, has been prepared after taking into consideration recommendations of SEBI constituted Group, Primary Market Advisory Committee and market participants’ feedback.

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