SEBI Looks To Sweeten Listing Norms To Attract Startups

In a bid to get more startups access to public markets, the Securities and Exchange Bureau of India (SEBI) is planning a number of relaxations in its listing criteria for startups.

The proposed changes include renaming the ‘Institutional Trading Platform’ (ITP)to ‘Innovators Growth Platform.’ The earlier platform ITP, established in 2013 as a place for startups to list, failed to take off because of unfavourable regulations, such as not allowing listing of  startups that have raised external funding of $4 Mn (INR 28.5 Cr) or more.

Inc42 had earlier reported that SEBI was in talks with different stakeholders and had set up a panel to look into ways to make listing an attractive option to raise funds and identify areas, if any, which require further changes.

Some of the changes proposed by SEBI are:

• To reduce waiting period of listed startups to move up to the main board of the stock exchange, from three years to one year
• Fixing the minimum offer size at $14,016 (INR 10 Cr)
• To reduce the minimum trading lot from $14,016 (INR 10 Lakh) to $2,803 (INR 2 Lakh) to increase liquidity and make the platform more attractive
• Doing away with the requirement of at least 50% of pre-issue capital being held by qualified institutional investors. It has been proposed that 25% of pre-issue capital for at least two years should be with qualified institutional investors, a family trust with a net worth of at least $70.08 Mn (INR 500 Cr), well-regulated foreign investors, and a new class of ‘accredited investors’.
• The ‘Authorised Investors’ can be an individual with a total gross income of $70.080 ( INR 50 lakh) per annum and minimum liquid net worth of $7 Mn (INR 5 Cr), or any body corporate with a net worth of $3.5 Mn (INR 25 Cr), and they can hold up to 10% stake before listing. SEBI has also agreed to consider further relaxations going further.
• It has also agreed to do away with a cap of 25% holding for any person, individually or collectively with persons acting in covert, in the company’s post-issue capital. The cap is being removed to ensure that investors are able to invest more than 25% in a start-up, thus providing the much-needed boost to such companies.
• To reduce the minimum application size for share offers to $2,803 (INR 2 Lakh), from $14,016 (INR 10 Lakh) earlier, to attract more investors to the new platform.
• Dropping the provision that involves 75% of the net offer to be allocated to institutional investors and the remaining 25% to non-institutional investors. It has been now recommended that there should be no minimum reservation for any specific category of investors.
• The requirement to limit allocation to a single institutional investor at 10% to be dropped.
• To reduce the minimum number of allottees to 50, from 200 under the current regulations.

The proposed relaxations are currently being examined by a sub-group within SEBI’s Primary Market Advisory Committee and to ensure that the proposed relaxations do not hamper investor confidence, there are some provisions that the market regulator intends to retain. For example, the existing provision for lock-in will be retained to lend confidence to the entities investing in a startup.

Inc42’s earlier coverage – ‘Indian Startups Need Their Own ‘Emerge’ – found that there was a need for a more conducive platform for startups and that the success stories of companies listed on the likes of NSE’s Emerge platform for small and medium businesses will be a key driver in deliberations of the SEBI panel that is exploring ways in which startups can go public.

The proposed changes are likely to be discussed at SEBI’s board meeting this week. Meanwhile the final draft will be something that investors, startups, and all the other stakeholders will be keenly awaiting.