What does it mean?
India’s start-up’s industry is considered the third largest in the world and undoubtedly, is a huge driving force behind the modern Indian economy. With more than 4 billion dollars’ worth investment in the current year, it has witnessed more than double growth in comparison to last year. With more and more ventures being set up, the number of jobs created also has gone up significantly. Hence, the government is keen to see to the factors that would provide a conducive environment to the start-ups so that they flourish to their optimum capability. One such factor is the listing of more ventures in stock exchanges but in which it has not been successful until now.
The Securities and Exchange Board of India (SEBI) as the regulator for the securities market, keeps modifying and changing the norms from time to time to suit the need of the hour. In a progressive looking decision that will majorly impact the start-ups, SEBI is paused to moderate and relax a number of norms so that they can easily raise funds and list & trade on share markets. This will have a huge impact on start-up ventures like e-commerce & data analytics, etc. which is burgeoning in India.
WHY DID THIS NEED ARISE?
For the listing of such ventures, SEBI had created ‘Institutional Trading Platform’, which received a lukewarm response from the market. There was a constant demand from various stakeholders to ease the norms and make the compliance requirements easier to follow, so that more and more such companies may be able to list themselves.
To review this platform, SEBI set up an expert group which had representatives from the law firms, Indian Software Product Industry Round Table, merchant bankers, the Indian Private Equity, the Indus Entrepreneurs and Venture Capital Association and stock exchanges. The Group also took the views of other stakeholders including start-ups, bankers, wealth management firms and investors, and subsequently, gave its report to SEBI.
WHAT ARE THE PROPOSED CHANGES?
Taking cognizance of the proposals by all stakeholders, including the public at large, SEBI is contemplating making effective changes in the prevailing norms.
#1. Name change: The first step proposed by SEBI is to change the name of the platform from ‘Institutional Trading Platform’ and rename it as ‘Innovators Growth Platform’.
#2. Change in the percentage of pre-issue capital: The proposal is to do away with the present requirement of 50% of pre-issue capital held by qualified institutional investors. In an effort to ease things, SEBI is mulling at cutting it to half and keeping the percentage to 25 to be held for at least two years for the qualified institutional investors, a family trust having net worth of minimum Rs 500 crore, foreign investors and accredited investors.
These new class of ‘accredited investors’ may be an individual who has a gross annual income of Rs 50 lakh and Rs 5 crore as minimum liquid net worth, or it may be any corporate with the net worth of Rs 25 crore, and they may hold up to 10% stake in the venture before its listing. In addition, SEBI has also assured to consider more relaxations in the future.
#3. Doing away with a cap of 25% holding: Another phenomenal change that SEBI has agreed to, is to do away with the capping of 25% holding for any one, individually or collectively, in the company’s post-issue capital.
In addition, SEBI also proposes to reduce from Rs 10 lakh to Rs 2 lakh the minimum application size for share offers.
#4. No minimum reservation for any specific category in allocation: Taking a significantly progressive step SEBI is seriously pondering to drop the provision of 75% of the net offers allocation to the institutional investors and rest 25% going in the kitty of non-institutional investors. It is contemplating of removing the capping altogether, for both the categories.
The allocation limit of 10% prevalent now in regards to a single institutional investor, is also set to go.
#5. Reducing the number of allottees greatly: SEBI is poised to change the current regulation of the minimum numbers of the allottees, which is at present pegged at 200 and bring it down to 50.
#6. Minimum trading lot to be reduced significantly: According to the present regulations the minimum trading lot in a start-up IPO is Rs 10 lakh but this is under scanner as SEBI wants to bring it down to Rs 2 lakh.
#7. Cut down on the time period: One of the major changes proposed by SEBI is to reduce the time period for the companies listed on this platform to the main board of the stock exchange. It is currently three years but SEBI is considering cutting it down drastically, to one year, for the benefit of start-ups. This, of course, will be subject to compliance of the requirements of the exchange.
#8. Fixing the minimum offer size: A key proposal is regarding the fixation of minimum offer size at Rs 10 crore.
#9. Some more demands under consideration: Some more demands put up by different stakeholders are under consideration by SEBI. Issue of differential voting rights, special rights such as appointment of auditors and board representation, are a few which are being reviewed by SEBI and it would take a call on these, at the appropriate time.
WHAT IS NOT LIKELY TO CHANGE?
SEBI proposes to keep the present provision of six months lock-in without major alterations. This is so because SEBI feels the lock-in period of six months of the entire pre-issue capital of the shareholders is essential to retain their confidence. Although there are some exceptions that can be availed by VCF/AIF Category I/FVCI and so on. Doing away with these, a uniform lock-in period of six months on all classes of pre-IPO shareholders, has been proposed by the SEBI panel.
HOW WILL THESE BENEFIT THE START-UPS?
- The name change is a signal of forward-looking regulator which will encourage the start-ups to take up listing in a big way.
- For the new-age ventures it would be much easier to access the platform with simplified norms.
- The start-ups can benefit in a big way by listing as they can raise funds and get their shares traded on stock exchanges.
- Relaxation on compliance requirements will help in converting the intention of all such ventures to actually list in the stock exchanges.
- The flexibility in the percentage of pre-issue capital will ensure participation of more and more institutional investors, individuals as well as foreign investors.
- By doing away with the 25% holding in post-issue capital, will lead to more investment in such ventures, resulting in improving the financial health of these start-ups.
- No minimum reservation in any specific category will ensure the much-required flexibility.
- Reducing the time period from three to one, SEBI will be sending a positive signal to all start-ups to take advantage of the ease of listing.
- SEBI’s assurance to look into all other genuine demands by varied stakeholders is sure to be a boon for the fast expanding start-up industry of India.
Making changes to suit the target audience is always a great strategy. By proposing these significant changes and eventually implementing them, SEBI is likely to usher in a new wave and witness a surge in listing by the start-ups in massive numbers.