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SEBI to relax listing norms for start-ups; renames ITP as ‘Innovators Growth Platform’

Earlier, the capital market regulator on June 12, 2018 constituted a Group to review Institutional Trading Platform (ITP) Framework to make stock market listing attractive for startups.

Dec 10, 2018 13:20 IST
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The Securities and Exchange Board of India (SEBI) on December 7, 2018 passed a slew of relaxations for start-ups in sectors like e-commerce, data analytics and bio-technology to raise funds and list them on stock exchanges.

The proposed changes include renaming the 'Institutional Trading Platform' (ITP) of start-ups’ listings as 'Innovators Growth Platform'.

Why SEBI thought to relax listing norms for start-ups?

The relaxation came in the wake of demands from various stakeholders to make the norms easier and the platform more accessible considering the expanding activities in the Indian start-up space.

While there has been a growing interest among the start-ups to get listed, their intention has failed to convert into actual listing due to difficulties in meeting the compliance requirements.

Proposed changes in the report of Expert Group reviewing ITP Framework

The SEBI had earlier set up an expert group to review the start-up platform. The group proposed following changes in the Framework:

Do away with requirement of at least 50 percent of pre-issue capital

The group proposed to get rid of the requirement of at least 50 percent of pre-issue capital held by qualified institutional investors.

It proposed that 25 percent of pre-issue capital for at least two years should be with qualified institutional investors, a family trust with net worth of at least Rs 500 crore, well-regulated foreign investors and a new class of 'Accredited Investors' (AIs).

The AIs are individuals with a total gross income of Rs 50 lakh per annum and minimum liquid net worth of Rs 5 crore, or anybody corporate with a net worth of Rs 25 crore. The AIs can hold up to 10 percent stake before listing.

Do away with a cap of 25 percent holding for any person

The group agreed to do away with a cap of 25 percent holding for any person, individually or collectively, in the company's post-issue capital. The removal of this cap will ensure that investors are able to invest more than 25 percent in a start-up, thus providing the much-needed boost.

Reduce minimum application size for share offers

SEBI also proposed to reduce the minimum application size for share offers to Rs 2 lakh from Rs 10 lakh earlier to attract more investors to the new platform.

No minimum reservation for any specific category of investors

It proposed to do away the allocation of 75 percent of the net offer to institutional investors and the remaining 25 percent to non-institutional investors. There should be no minimum reservation for any specific category of investors.

It also drops the requirement to limit allocation to a single institutional investor at 10 percent.

Retains provisions for lock-in period of entire pre-issue capital

SEBI group retains the existing provisions for lock-in to lend confidence to the entities investing in such a company. The regulations require minimum six-month lock-in of the entire pre-issue capital of the shareholders, excluding the shares arising out of ESOPs and shares held by venture capital funds.

Reduce the time period

SEBI proposed to reduce the time period from 3 years to 1 year for the company listed on the start-up platform to the main board of the stock exchange, subject to compliance with the exchange requirements.

Fixing the minimum offer size at Rs 10 crore

Another key proposal is to fix the minimum offer size at Rs 10 crore.

These changes are being examined by a sub-group within SEBI's Primary Market Advisory Committee.

Expert Group reviewing Institutional Trading Platform (ITP) Framework

Earlier, the capital market regulator on June 12, 2018 constituted a Group to review Institutional Trading Platform (ITP) Framework to make stock market listing attractive for startups.

Members of the group include representatives from:

• Indian Software Product Industry Round Table (iSPIRT)

• The Indus Entrepreneurs (TIE)

• Indian Private Equity and Venture Capital Association (IVCA)

• Law firms

• Merchant bankers

• Stock exchanges

Terms of Reference of the Group

• To look into the existing Institutional Trading Platform (ITP) framework and suggest measures to facilitate listing of startups.

• To revisit the current ITP framework and identify the areas, if any, which require further changes.

• To address issues relevant to ITP which the group may like to assess.

Report

The Group held extensive consultations with other stakeholders including start-ups, investors, bankers and wealth management firms and subsequently submitted its report to the SEBI.

The report was later published for public consultation on the proposed changes.

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