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Sebi eases listing norms for startups; alters regulations on delisting

Business Standard |

26 March 2021

Pre-listing holding period reduced from 2 years to 1 year; open offer trigger relaxed from 26%to 49%


The Securities and Exchange Board of India (Sebi) on Thursday eased eligibility and listing criteria on the so-called Innovators Growth Platform (IGP), a separate exchange venue for new-age startups.

At present, for a company to be able to list on IGP its 25 per cent pre-issue capital needs to be held for at least two years by an institutional investor and other large investors. Sebi has eased this requirement to just one year.

Also, up to 25 per cent of pre-issue shareholding of ‘accredited investors’ –an individual investor with net worth of Rs 5 crore—will allowed for the above eligibility criteria. Earlier, a maximum of 10 per cent of pre-issue holding of accredited investors’ was considered for the 25 per cent pre-issue eligibility requirement.
Sebi also allowed companies with superior voting rights to list on IGP. Further, the open offer trigger for companies listed on this platform has been eased from 26 per cent to 49 per cent. Sebi has also made it easy for company to delist or to migrate to the main board—which is the NSE or BSE.

Introduced in 2019, IGP is aimed providing technology-oriented startups or companies with early-stage investors a listing opportunity with a much more relaxed framework compared to the mainboard. The platform is yet to see any listing.

Experts said the latest relaxations by Sebi could help the IGP platform to take off.

“Several sweeping changes have been proposed for the IGP platform. This should pave the way for easier fund raise by start-ups,” said Rajesh Thakkar, Partner & Leader - Transaction Tax, BDO India.

Meanwhile, the Sebi board has also tweaked the delisting regulations. Going ahead, promoters will have to disclose their intentions to delist. Also, independent directors will have to guide the minority shareholders of a delisting-bound company by providing a reasoned recommendation on the delisting proposal. Further, Sebi has made various timelines associated with delisting more efficient.

Sebi has also provided some relaxation with regard to reclassification of promoter shareholding. Promoters with less than 1 per cent shareholding and no ‘control’ will not be required to see shareholders’ nod for reclassification to ordinary shareholders. Also, the Time gap between the date of board meeting and shareholders meeting has been reduced to make the process more efficient.

Sebi has also made several changes to the disclosure requirements for listed companies. Going ahead, the regulator has said all the video and audio recordings to analyst andinstitutional investors meets should be made public within 24 hours. Also, the written transcripts of such meetings will have to be made available with five days.

This change is aimed at mitigating the information asymmetry. Experts said the new mandate will prevent companies from passing on sensitive information to select group of investors, which put small shareholders in a disadvantageous position.

Sebi has extended the formulation of dividend distribution policy extended to the top 1000 companies. The requirement to constitute a risk management committee has also been extended to top 1,000 companies. Currently, both these requirements were mandatory for only the top 500 companies by market value.

The regulator has said the Responsibility and Sustainability Report (BRSR) will replace the Business Responsibility Report (BRR). BRSR will become mandatory for the top 1,000 companies from FY23. BRSR is aimed at improving quality of disclosures, with a special focus on environment, social and governance (ESG).

“New reporting requirements are expected to bring in greater transparency through disclosure of material ESG-related information to enable market participants to identify and assess sustainability-related risks and opportunities. These requirements set the stage for taking a leap for better disclosures in the ESG space in India,” Sebi said in a press release.

“The proposed changes have surely been made more granular towards the end of strengthening the quality of disclosures and affording the investors an opportunity to make effective comparative assessment across companies and sectors. Sebi has laid a definitive path to strengthen the corporate governance framework of the Indian securities market,” said Prashaant Vikram Rajput, Partner, White & Brief Advocates & Solicitors.

Sebi has also proposed to change the alternative investment funds (AIF) regulations. It has provided a definition of ‘startup’ as specified by government to enable investment by angel funds. Also, Sebi has removed the list of restricted activities or sectors from the definition of ‘venture capital undertaking’ . This will to provide more flexibility to venture capital funds.