SEBI’S proposal to simplify listing of startups

In view of the evolving start-up ecosystem in the country, and with the objective of making the Innovators Growth Platform (IGP) more accessible and attractive for easier listing by start-ups and provide faster liquidity and exit options to the Investors in start ups, SEBI has proposed amendments to the IGP framework under Chapter X of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (the “ICDR Regulations”).

The comparative gist of the amendments to the IGP listing requirements vis-à-vis the position in respect main board listing requirements are summarized below:

Amendments to the IGP Listing Requirements

Requirements for Main Board Listing

Eligibility Criteria

The holding period for 25% of pre-issue paid up capital held by Eligible Investors has been reduced to 1 year instead of 2 years.

There is no such requirement for holding prior to listing. The Company proposing to list on main board must satisfy other eligibility criteria with respect to 3 years track record of operating profits, net tangible assets, net worth, etc.

Lock-In

Category II AIFs (PE funds, real estate funds, etc) may also be exempted from post issue lock in requirements provided shares are held for 1 year from the date of purchase.

In the Main Board, post issue lock-in requirements are not applicable for Category II AIFs if shares are held for a period of 1 year from date of purchase.

Discretionary Allotment to Anchor Investors

60% of issue size can be allocated to all Eligible Investors on discretionary basis prior to issue opening subject to such shares being locked-in for 30 days from allotment date.

60% of the QIBs portion of the issue size can be allocated to Anchor investors on a discretionary basis prior to issue opening subject to shares being lock-in for 30 days from the allotment date.

Accredited Investor (AIs)

The existing limit of 10% on AIs is proposed to be removed and AIs’ entire pre-issue shareholding may be considered for the Eligibility Criteria.
Promoters/Promoters Groups shall not be reckoned as AIs.
Family trust will be clubbed into AIs.
The net worth requirement for family trusts for being an Eligible Investor is proposed to be reduced to INR 25 Cr. (existing INR 500 Cr).

There is no concept of an Accredited Investor under the Main Board listing.

Differential Voting Rights (DVR) / Superior Voting Right (SR) equity shares

It is proposed to issue DVR / SR equity shares for companies listed under IGP framework

Companies on main board are already allowed to issue DVR/SR equity shares to promoters. DVR concept was introduced on the main Board for technology based companies.

Special Rights to Investors

Special Rights provided to investors holding in excess of 10% of capital prior to listing under the SHA (board seat, affirmative voting rights, etc) shall continue post listing.
Appropriate disclosure of such rights must be included in offer documents.
Special rights may not be open ended and be aligned with the DVR framework, with adequate checks and balances in terms of coat-tail provisions and a sunset clause.

All special rights to investors prior to listing shall fall away and any new rights to investors shall require shareholder approval under SEBI (LODR) Regulations, 2015.

Takeover Requirements

Open Offer: Threshold for triggering open offer under Takeover Regulations to be increased to 49% of paid-up capital/voting rights in IGP company.
Disclosure: The threshold for disclosures of the aggregate shareholding under Takeover Regulations to be increased from the present 5% to 10% and whenever there is subsequent change of ± 5% (instead of present ± 2%) in the shareholding.

Threshold for triggering open offer obligations under Takeover Regulations is 25% of paid-up capital/voting rights in listed entity.
The threshold for disclosures of the aggregate shareholding under Takeover Regulations for company listed on main board is 5% of paid-up share capital and whenever there is subsequent change of ± 2% in the shareholding.

Voluntary Delisting

Floor price may be determined in accordance with Delisting Regulations.
Premium for delisting shall be determined by acquirer subject to justification for the same.
Delisting proposal may be approved by resolution of majority of minority shareholders (non-promoter) instead of 2/3rd of the minority.
Delisting may be considered if 75% of the total shareholding / voting rights are acquired.

Any company on main board proposing to delist shall be required to comply with the Delisting Regulations.
The price for delisting shall be discovered through reverse book building process.
Delisting may be considered if 90% of the total shareholding/voting rights are acquired.
The delisting proposal shall be approved by 2/3rd majority of the public shareholders

Migration To Main Board of Stock Exchange

For IGP company proposing to migrate to main board but not meeting the eligibility requirements, atleast 40% of its capital shall be held by QIBs, as on date of application for migration.

For any company proposing to directly list on the main board but not meeting the eligibility criteria for listing on the main board, it needs to issue at least 75% of its public issue to the QIBs.

IGP is a new segment which was earlier known as Institutional Trading Platform introduced by SEBI in 2015 to facilitate listing of start-ups.
Eligible Investors include QIBs, Family Trust with networth > INR 500 Cr, Accredited Investor i.e. individual with net worth> 5 crore and income > 50 lakh / body corporate with net worth > 25 crore; and Regulated entities like Foreign portfolio Investor (FPI), Pooled investment fund (with minimum Assets under management > USD 150 million) etc.
Regulation 3 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
Regulation 29 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
SEBI (Delisting of Equity Shares), 2009

SEBI’S proposal to simplify listing of startups

NovoJuris , Team

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