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The Securities and Exchange Board of India (SEBI) has proposed an alternative capital raising platform (pdf) making it easier for startups  in India to raise funds through initial public offerings (IPOs). The markets regulator has recommended setting up an institutional trading platform (ITP) for companies to list and relaxed post-listing lock-in for major shareholders of these firms and eased disclosure requirements that IPO-bound companies have to make in their issue prospectus on how they plan to use the money from the offering.

“It is proposed that the new platform for raising money within the country will be initially made applicable to companies which are in the area of software product development, e-commerce, new-age companies having innovative business model, etc. which create new business opportunities or which serve important efficiency enhancement in existing business activities,” SEBI said in a discussion paper.

SEBI had introduced ITP in 2013 to allow small and medium enterprises to list without having to make an initial public offer.

Notes from the discussion paper

– The proposed platform will have two categories of investors i.e. Qualified Institutional Buyers (QIB) and Non-institutional investors (NII). It has been suggested that the family trusts may also be allowed to apply under the QIB category.

– Allotment to QIBs may be on a discretionary basis whereas to NIIs it shall be on proportionate basis. Allocation between the said two categories shall be in the ratio of 75% and 25% respectively. Any under subscription in non-institutional categories shall be available to QIB category and no QIBs shall be allotted more than 5% of the issue size.

– The minimum application size in case of such issues shall be Rs. 10 lakhs. The minimum application size in case of such issues shall be Rs. 10 lakhs.

– The listing on institutional platform shall be for a period of at least 1 year. Post-1 year, the company will have the option to migrate to main board subject to compliance with eligibility requirements of the Stock Exchanges

– The minimum trading lot on the said platform shall be of Rs. 5 lakhs. There is also a suggestion that this threshold limit on trading lot be lowered for sale of shares by the employees who have been granted ESOPs

– The regulator also proposed a new definition for a professionally managed company and said that they are those “where no person (individually or collectively with persons acting in concert) holds 25% or more of the pre-issue share capital” and can access capital through the platform.  Sebi said that the founders of such companies are not in a position to offer the shares for lock-in as they do not have sufficient resources to acquire additional shares to offer for a lock-in and hence the founders are not inclined to be known as promoters of the company.

Disclosure norms relaxed

– The regulator also relaxed disclosure norms by allowing startups to state the main object of the issue for general corporate purpose. The regulator said the disclosure may be restricted to only broad objects in line with major international jurisdictions.

– The basis of issue price may include disclosures, other than projections, as deemed fit by the issuers accessing the market on the institutional platform in order to enable investors take informed decisions.

– Complete details about creditors should be disclosed on the web page of the company. The disclosure in the offer document should be based on materiality thresholds as defined and disclosed in the offer document and shall provide link to the webpage of the company where full details are disclosed. Only consolidated information on dues to SMEs and other creditors shall be disclosed in the prospectus.

Image credit: Flickr user Nicolas Mirguet