To help startups move from the Innovators Growth Platform of stock exchanges to the main board, Sebi on Wednesday announced a new set of norms to allow them to shift after one year to regular trading and expanding their shareholder base to at least 200.
The company would also need to have a profitablity/ networth track record of three years or at least 75 per cent of its shareholding should be with qualified institutional investors.
After its board meeting, Sebi said the minimum promoter contribution would need to be 20 per cent, which would be locked in for three years. The period of earlier six-month lock-in served at the time of listing on the startup platform would be deduced from the overall 3-year lock-in requirement.
The regulator is of the view that if companies listed on the IGP (Innovators Growth Platform) are allowed to be traded in the regular category of main board without following a stringent criteria, it may be misused to bypass the rigorous route of coming up with a main board IPO, officials said.
Any company desirous of getting listed on the main board of stock exchange for regular trading of their shares need to follow stringent disclosure and eligibility norms and launch an initial public offer (IPO). But, the rules are much more relaxed for the startups looking to list their shares on the new IGP, where trading activities are relatively restricted.
A detailed set of norms for listing on IGP were finalised by Sebi's board in December 2018 and the regulator was asked at that time to decide on the requirements of migration of trading of shares from IGP to the main board in consultation with stock exchanges and other stakeholders.
Sebi discussed the draft norms with its own Primary Market Advisory Committee as well as the two leading bourses BSE and NSE, pursuant to which a discussion paper was issued for public comments in May this year.
After taking into account comments received from merchant bankers, industry bodies, stock exchanges and others, Sebi finalised a detailed set of draft norms which was presented for its board's approval on Wednesday.
As per the approved norms, a company would need to be listed on the IGP for at least one year for migration and have at least 200 shareholders at the time of migration.
Besides, the company, or any of its promoters and directors should not have been barred from accessing the capital market. They should also not have been classified as wilful defaulters or fugitive economic offenders. Also, none of the promoters or directors should be associated with a company barred from the capital market.
Some suggestions were received that the minimum number of shareholders for migration should be reduced to 50 or 100, as startups do not have a large investor base and a lower threshold in the initial phase would help the platform attract more companies and investors.
However, Sebi was of the view that the threshold should remain at 200 shareholders to ensure liquidity.
The new norms would also require the company to have net tangible assets of at least Rs 3 crore, calculated on a consolidated basis, in each of the preceding three years, of which maximum 50 per cent can be held in monetary assets.
For migration, the company also needs to have an average consolidated operating profit of at least Rs 15 crore during the preceding three years, with an operating profit having been recorded in all the three years. The net worth threshold has been proposed at Rs 1 crore for each of the three preceding years.
In case the company has changed its name within the last one year, at least 50 per cent of its consolidated revenue for the preceding one full year should have been earned from the activity indicated by the new name.
A company that is not in compliance with these financial thresholds would need to have 75 per cent of its capital held by investors classified as Qualified Institutional Buyers (QIBs).
A restatement of accounts would be required for companies getting listed for the first time by applying uniform accounting policies, but it would not be applicable for migration of the IGP-listed companies.
During the public consultations, there were demands for relaxing these norms on the ground that startups were early growth stage companies with limited track record and they might opt to go for private equity and wait to meet for the eligibility criteria for listing on the main board at a later stage.
However, Sebi has opined that trading on regular main board entails trading by retail investors, in addition to other investors, while the eligibility criteria also needs to be stringent to ensure a certain degree of credibility.
Sebi has also proposed that the promoters' minimum contribution should be 20 per cent of the total capital and it should be locked in for at least 3 years from the date of grant of approval for trading on main board.
In case of a shortfall, a maximum of 10 per cent can be contributed by alternative investment funds, foreign venture capital investors, scheduled commercial banks, public financial institutions or insurance companies without being identified as promoters, but subject to similar lock-in conditions.
Any excess promoter holding above 20 per cent would be locked in for one year.
The lock-in condition would not apply to companies that have been listed on the IGP for three years or more.
Sebi had received suggestions to relax these norms too, but the regulator is of the view that the minimum promoter contribution and lock-in provisions are in line with those prescribed for the main board IPOs.
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