MUMBAI: The Securities and Exchange Board of India (Sebi) has proposed to ease listing norms to enable startups raise funds through initial public offerings (IPOs). The capital market regulator has recommended opening up the institutional trading platform for these companies to list. It has relaxed post-listing lock-in for major shareholders of these firms and eased disclosure requirements that IPO-bound companies have to make in their issue prospectus on how they plan to use the money from the offering.
Sebi had introduced the institutional trading platform (ITP) in mid-2013 to allow small and medium enterprises to list without having to make an initial public offer.
"While such companies are listed on the ITP, they are not permitted to raise equity capital through a public issue though they can continue to make private placements. Sebi has been in receipt of suggestions to permit capital raising in the said ITP platform," the regulator said.
Sebi has also proposed a new definition — professionally managed companies — where no person individually or collectively along with persons acting in concert hold 25 per cent or more of the company.
"New-age companies having an innovative business model and belonging to the knowledge-based technology sector, where no person holds 25 per cent or more of the preissue share capital, may be considered professionally managed ones and can access capital through the said institutional platform," said Sebi on Monday in a discussion paper seeking public comments by April 20.
At present, rules require promoters to offer a minimum 20 per cent of postissue capital as lock-in for a period of three years. The lock-in provision ensures promoters' skin in the game for a period of at least three years. This is also to ensure that interest of retail investors is protected. But, most startup companies have lower founding members' holding (often less than 20 per cent) and a large holding of institutional investors.
Sebi said the founding members of such companies are not in a position to offer the shares for lock-in as they do not have sufficient resources to acquire additional shares to offer for a lock-in. Besides, these companies are often professionally run and, hence, the founding members are not inclined to be disclosed as promoters. Also, the institutional investors of such companies generally advise them to list overseas, citing a relaxed regulatory regime.
The regulator also relaxed disclosure norms by allowing startups to state the main object of the issue for general corporate purpose. The regulator said the disclosure may be restricted to only broad objects in line with major international jurisdictions.
The regulator said the basis of the issue price would include disclosures, other than projections as deemed fit by the issuers accessing the market.
"Many of the companies have the characteristic that their knowledge-based product is not widely understood or appreciated by a large number of investors. They do not incur profits in the initial years, but have the potential to grow in a big way in a short time-frame. It is a global phenomenon that many of them are getting acquired by large companies at high valuations. Innovators are, therefore, looking for an environment where their inner strength and potential is fairly recognised," Sebi said.
Also Read: Indian Equities Open Higher On Positive Global Cues
From April 1, Shell Out More For Mfs, Eating Out And Business-Class Flights
