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.
  1. IGP is a new segment which was earlier known as Institutional Trading Platform introduced by SEBI in 2015 to facilitate listing of start-ups.
  2. 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.
  3. Regulation 3 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
  4. Regulation 29 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
  5. SEBI (Delisting of Equity Shares), 2009

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