SEBI Introduces Amendment in ICDR (Issue of Capital & Disclosure Requirement)( fourth amendment) Regulations,2009

For last many a months, Start-ups Listings and that too in a simplified manner have been the buzzwords in the Markets. A lot has been said and many a discussions have taken place on the same.

The Capital Markets Regulator SEBI, on 14th August, 2015, introduced amendments in SEBI (Issue of Capital & Disclosure) Regulations, 2009, thereby replacing the extant Chapter XC of the Regulations. These new provisions will act as a boon for not just start-ups engaged in the Information Technology/ Nanotechnology/ Biotechnology/ Data Analytics etc, but also other entities, subject to compliance of certain pre requisites.

Under the new norms, such companies can get listed on a separate platform of stock exchanges known as Institutional Trading Platform (ITP), with the option of either coming out with a Public Issue or without coming out with a Public Issue.

These Regulations are aimed to encourage the Indian start-ups and entrepreneurs to remain within the country rather than migrating abroad for funds by getting listed there. In past, it has been observed that start-ups were forced to list their shares on foreign exchanges as they were unable to meet stringent regulatory requirements.

The norms also provide for the option of migration to the main Board after a period of 3 years (subject to the company complying with the listing conditions of the main Board). The norms also provide for simplified exit process from the ITP.

Main Highlights of the new Chapter XC

• ITP shall be accessible to both Institutional as well as Non-institutional investors.
• Institutional investor means QIBs, family trusts, systematically important NBFCs, all with Net-worth of > Rs 500 crore.
• The Norms mandate that for Companies engaged in IT related activites, atleast 25% of the pre issue capital should be held by QIBs, while for others, atleast 50% of their pre issue capital is held by QIBs.
• The Norms further provide that no person acting individually or with persons acting in concert shall hold 25 % or more of post- issue capital in the entities specified above.
• As mentioned above, there are provisions for listing with public issue and also without public issue.
• Conditions for Listing without Public issue –
  • The entity is needed to file a draft Information Memorandum with SEBI, containing the requisite disclosures of an Offer Document.
  • Issuer is not required to comply with ICDR provisions of allotment, dispatch of issue material, issue opening & closing, advertisement, underwriting, and other procedures related to public offer.
  • In principle approval is required to be obtained from the stock exchange.
  • Specified securities are required to be listed within 30 days from date of issuance of observations by SEBI
  • Minimum public shareholding norm of 25 % is not applicable.
  • Entities may exit from the platform if special resolution is passed by postal ballot & the concerned stock exchange approves such exit.
  • Recognized stock exchange may also delist the securities upon non-compliance of listing conditions.
  • Delisted Entity shall not be eligible to relist on ITP for a period of 5 years from the date of delisting.
• Conditions for Listing with public issue –
  • Company shall file draft offer document with SEBI along with fees specified in the regulations, disclosing the broad objects of the issue.
  • Minimum application size shall be Rs 10 lakh.
  • Number of allottees shall be more than 200.
  • Broad objectives & basis of issue price shall be disclosed in offer document which will help investors to take informed decisions.
  • Allotment can be made to both Institutional investors as well as Non-Institutional Investors. However, there are certain pertinent differences between the allotment to the 2 categories:

  Basis of Difference	Institutional investors	Non-Institutional Investors
  Allocation in Net offer to public	75%	25%
  Allotment Mode	May be on Discretionary Basis	Shall be on Proportionate Basis
  Disclosure as to Mode of allotment	Needed to be disclosed prior to or at time of filing of Red Herring Prospectus.	No requirement as such
  Maximum allotment in case of Discretionary allotment	Not more than 10 % of post issue capital to be allotted to a single institutional investor.	Discretionary allotment is not allowed to Non- institutional investors.

• Lock in period –
  • Entire pre-issue capital of shareholders shall be locked in for a period of 6 months.
  • Following shares shall not be locked in for 6 months
• Shares issued under ESOP plan prior to IPO
• Shares which are held by VCF or AIF (these shall be put under lock in for period of at least 1 year from date of purchase by such fund).
• Shares held by persons other than promoters, continuously for a period of at least 1 year prior to the date of listing.
• Promoters’ locked in securities may be pledged with Banks/ FIs.
• Minimum trading lot shall be Rs 10 lakh.

CP Viewpoint:

In our view, these new norms will go a long way in retaining Indian companies on Indian bourses. These shall be of help not just to start ups but to other existing companies as well. The erstwhile condition that the company should not be more than 10 years old has been done away with and now, a company of whatever age can get listed on ITP. Further, the eased provisions of migration to the Main Board and also exit from ITP would ensure quality companies to get listed on the Platform.