Start-up listing: Sebi moots more investor categories, relaxed norms

Sebi has mooted changes to the framework of Institutional Trading Platform, which has not seen much traction even though it was put in place in August 2015

To make listing on bourses more attractive for start-ups, markets regulator Sebi on Friday came out with a new set of proposals that would allow more investor categories, relax shareholding norms and reduce trading lot amount.   

In this regard, Sebi has mooted changes to the framework of Institutional Trading Platform (ITP), which has not seen much traction even though it was put in place in August 2015. 

Since the framework failed to evince interest, Sebi came up with certain recommendations through a discussion paper in July 2016 to make the platform more accessible. Also, considering the lukewarm response in the platform, no amendments to the norms were made.

However, lately, there has been a lot of activity in the start-up space in India and interest has been evinced with regard to listing on ITP by various stakeholders and industry bodies, according to Sebi.

In view of this trend, the regulator constituted a group in June 2018 to review the ITP framework and identify the areas which require further changes.

Issuing the draft papers on Friday, the regulator has proposed to rename the Institutional Trading Platform (ITP) as Innovators Growth Platform (IGP). 

In order to be eligible for listing on ITP, Sebi has proposed increasing the category of eligible investors when it comes to shareholding before the listing.

It has proposed that 25 per cent of the pre-issue capital should be held by Qualified Institutional Buyers (QIBs) or other regulated entities or accredited investors (AIs) for at least two years. Out of this, not more than 10 per cent should be held by AIs.

Besides, QIBs, family trusts with net-worth of more than Rs 5 billion, category III FPIs (Foreign Portfolio Investors) should be made eligible. 

Sebi also proposed that entities such as those having a pooled investment fund with minimum assets under management of $150 million and those from a jurisdiction that is a signatory to the International Organisation of Securities Commission's Multilateral MoU should qualify for holding 25 per cent of the pre-issue capital.

The market watchdog has defined AIs as any individual with a total gross income of Rs 5 million annually and who has a minimum liquid net worth of Rs 50 million or any body corporate with a net worth of Rs 250 million. 

The regulator has suggested tweaking the share allocation limit in entities listed on the platform. It is proposed that there should not be any minimum reservation of allocation to any specific category of investors and allocation should be on a proportionate basis.

At present, 75 per cent of the net offer to the public should be allocated to institutional investors and the remaining 25 per cent to non-institutional investors.

In the case of discretionary share allotment to individual institutional investors, the watchdog has proposed allocation to investors on a proportionate basis, without any reservation. At present, the ceiling is 10 per cent of the issue size for discretionary allotment.

Another proposal is to do away with the current requirement that no person, individually or collectively, should have more than 25 per cent of the listed entity's post-issue capital.

As per the discussion paper, the minimum trading lot is to be reduced to Rs 200,000 from existing Rs 1 million. Besides, the minimum number of allottees will be decreased to 50 from the present 200 and a minimum lock-in period of six months for the entire pre-issue capital would be made applicable to all categories of shareholders.

Sebi also proposed that the new platform be designated as the main board platform for start-ups with an option to trade under regular category after completion of one year of listing.

Currently, an entity listed on ITP may migrate to the main board after the expiry of three years from the date of listing.

The discussion paper on the review of the framework for ITP, open to public comments till November 16, has been prepared after taking into consideration recommendations of Sebi constituted Group, Primary Market Advisory Committee and market participants' feedback.