Institutional platform: lock-in, disclosure norms eased

To enable the listing of start-ups, capital market regulator SEBI on Tuesday gave its approval for easier norms on a newly created Institutional Trading Platform (ITP). The move is aimed at attracting new companies, especially those in the business of technology, information technology, intellectual property, data analytics, bio-technology, nano-technology in the securities market.

Eligibility Companies which are in the above businesses with at least 25 per cent pre-issue stake owned by institutional investors, or those with 50 per cent pre-issue shareholding with institutions shareholding in any business, are eligible to tap the ITP.

Under the new platform, lock-in for pre-IPO investors has been reduced to six months from 3 years. The cap of 25 per cent of issue size on general corporate purposes has been done away with. This will give the companies more flexibility to deploy the money raised through the IPO. Disclosures on creditors and litigation would be subject to the materiality principle and the companies board would decide whether such disclosures are material are not. Under the main stock exchanges, companies have to make full disclosure on every creditor and litigator.

Tejesh Chitlangi, Partner, IC Legal, said, “The new relaxed norms for start-up listing is a step towards further boosting the booming start-up sector. SEBI already has a favourable private placement fund raising regime for venture capital funds which has helped in capitalising the start-ups in India.”

Indigenous opportunity “Further relaxing and providing a flexible regime for start-ups to raise capital from the institutions and ultra HNIs on an ITP is a step towards boosting the start-up sector in the country. This will also assist the promising start-ups to list in the home country rather than exploring listing in overseas jurisdictions,” he added.

Only two categories of investors — institutional investors (QIB) besides family trusts, systematically important NBFCs registered with RBI and the intermediaries registered with SEBI, all with networth of more than ₹500 crore), and non-institutional investors (NIIs) other than retail individual investors can access the proposed ITP.

SEBI has allowed institutions to hold up to 75 per cent in such companies and non-institutional investors (NIIs) up to 25 per cent. In addition, there is no cap on the expenses related to general corporate purposes as against the present cap of 25 per cent in the extant regulations. These regulations pertain only to the ITP and not for IPOs listed on the main board of stock exchanges.

The maximum an entity can hold as a group in such companies is 25 per cent, mandated SEBI.

Allotment to QIBs Allotment to QIBs can be done on a discretionary basis whereas for NIIs, it would be on a proportionate basis (based on the number of bids received). Discretionary allotment is, however, subject to a 30 day lock-in as in the case of anchor investors in an IPO, and no QIB will receive more than 10 per cent.

The minimum application size for such issues has been pegged at ₹10 lakh and the minimum trading lot also at ₹10 lakh with 200 being the minimum number of allottees.

Companies have the option to migrate to the main board of stock exchanges after three years.

Investments by alternative investment funds in these companies would be categorised as unlisted securities, SEBI said.

Relaxations to SMEs Companies listed on SME–ITP would continue to follow extant regulation including applicable relaxations from compliance with corporate governance requirements, SEBI said.

SEBI has also mandated that disclosures related to litigations and creditors should be put in the offer document based on taking into account materiality as defined by the company’s board. However, the company has to make all relevant disclosures on its website with product advertisements of an issuer not required to give details of public/rights issue, SEBI said.

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