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Startup listing rules, exit route relaxed

Currently, the capital market regulator’s rules stipulated that at least 25 per cent of pre-issue capital of a start-up wanting to list should have been held by an eligible investor for at least two years. In its board meeting on Thursday, the SEBI board has cut this to a year.

Written by Khushboo Narayan | Mumbai |
March 26, 2021 1:11:17 am
Eligible investors here include qualified institutional buyers, family trusts with a minimum net worth of Rs 500 crore, and foreign portfolio investors and so on.

The Securities and Exchange Board of India (SEBI) on Thursday made it easier for start-up companies to list under its Innovators Growth Platform (IGP) framework. This was introduced in 2018 and as of December 2020, no listing had taken place under this framework

Currently, the capital market regulator’s rules stipulated that at least 25 per cent of pre-issue capital of a start-up wanting to list should have been held by an eligible investor for at least two years. In its board meeting on Thursday, the SEBI board has cut this to a year.

Eligible investors here include qualified institutional buyers, family trusts with a minimum net worth of Rs 500 crore, and foreign portfolio investors and so on.

Moreover, only 10 per cent of the pre-issue shareholding of so-called Accredited Investors was considered for the 25 per cent requirement cited earlier. Accredited investors are individuals with a net worth above Rs 5 crore and income above Rs 50 lakh and corporate entities with a minimum net worth of Rs 25 crore. The SEBI board has now said that the entire shareholding of such an Accredited Investor can be considered for the 25 percent requirement.

SEBI has also now allowed start-ups seeking to list to make discretionary allotments of up to 60 percent of their issue (initial public offer) size before they approach the market. Such an allotment can be made to eligible investors and have a lock-in of 30 days, the regulator said.

Similarly, to harmonise regulations with regular IPOs, SEBI has allowed firms which have issued superior voting rights (SR) equity shares to promoters or founders to list under the IGP framework.

The regulator has also tweaked takeover rules for companies listed under the IGP framework. The threshold for triggering an open offer to shareholders has been raised to 49 per cent from the existing 25 per cent. Under current rules, if an entity acquires 25 percent of a listed firm, it has to make an open offer to buy at least 26 per cent from public shareholders. However, SEBI added that “irrespective of acquisition or holding of shares or voting rights in a target company, any change in control directly or indirectly over the target company will trigger open offer.”

Similarly, it has made delisting easier for firms under the IGP framework. Currently, the rules call for firms to follow a reverse book building process (RBB) for delisting. Now, the board has done away with the RBB mechanism. It has said that firms can delist if the post offer acquirer or promoter shareholding, taken together with the shares tendered and accepted, reaches 75 per cent of issued shares; and at least 50 per cent shares of the public shareholders are tendered and accepted. The floor price for the delisting offer will now be determined by Takeover Regulations, 2011, along with the delisting premium as justified by the acquirer or promoter, it said.

Finally, SEBI has also made it easier for firms listed under IGP to migrate to the Main Board – the regular framework that governs listed companies from Reliance Industries to Kalyan Jewellers. Under current rules, if an IGP listed firm does not satisfy the conditions of profitability, net assets, net worth, etc. then it must have at least 75 per cent of its capital held by a qualified institutional buyer to apply for migration. Now, this requirement has been cut to 50 per cent.

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