The Securities and Exchange Board of India (Sebi) has proposed to tweak several rules to encourage startups to go public and list on the so-called Innovators Growth Platform.
The regulator has proposed that the compulsory shareholding period before listing for investors owning 25% or higher stake be halved to one year. It has also suggested raising the open offer trigger for investment deals, as well as recommended allocation of a higher percentage of shares to anchor investors during public issues and special rights to promoters and existing institutional investors.
“The two-year hold period before listing is perceived as an onerous condition. Reducing the hold period would help startup companies in attracting investors who are inclined for an early listing at the time of investing. Further, this will potentially make more number of companies eligible for IGP listing,†Sebi said in a discussion paper released on Monday.
In 2015, Sebi had introduced a new segment named the Institutional Trading Platform (ITP) to facilitate listing of new age startups. However, the ITP framework failed to evince interest.
It attempted to revive the platform in 2019 by introducing certain changes to the ITP framework, and renamed it the Innovators Growth Platform (IGP). However, there are still no companies listed on it.
The IGP is aimed at issuers who are intensive in the use of technology, information technology, intellectual property, data analytics, bio-technology and nanotechnology. The proposed changes seek to make the platform more attractive for new age companies to raise capital, while providing liquidity and secondary market exits for investors.
Under the new proposals, Sebi has recommended to allow companies to allocate up to 60% of the issue size on a discretionary basis to anchor investors, prior to the issue opening.
“It has been represented that investors may not be interested in proportionate allotment, as smaller amount may not meet the minimum investment benchmarks for such investors. Thus, discretionary allotment will help issuers to cater to such investors,†the regulator said in the paper, seeking public comments by January 11.
The regulator has also proposed to increase the threshold for triggering open offers to 49% from 25%.
At present, takeover rules mandate that an investor buying a 25% or higher stake in a listed company also make an open offer to the public shareholders to buy at least another 26%.
A lower threshold for triggering open offers would restrict the flexibility of the investors to move in and out of investments in startups, Sebi said, adding: “However, it may be stipulated that any change in control irrespective of value of acquisition will trigger an open offer.â€
This would also allow existing financial investors to invest in subsequent fundraising rounds of the company in case they decide to invest together, which may otherwise be deemed to be persons acting in concert and triggering open offers, the regulator said.
Sebi has also proposed to allow issuer companies seeking listing on the IGP to issue differential voting rights or superior voting rights equity shares to promoters. It said special rights such as board seats and affirmative voting rights for existing institutional investors holding in excess of 10% of capital should continue. It also proposed easier rules for startups to migrate from the IGP to the main board.
The regulator thinks since startups are young companies with a relatively short operating history, strategic investors play an important nurturing role in several areas such as capital allocation, operating frameworks, business model and strategy.
“Thus, investors who have a say in these matters by virtue of a board seat and some affirmative rights may in fact contribute to the success of the startup and therefore the continuation of their special rights may be in the interest of a larger set of minority shareholders. Special rights with existing investors also provide sense of continuity to existing investors,†Sebi said.
