Start-up listing: Sebi may further relax proposals

Could halve minimum investment size from what was proposed in March paper, plus other concessions; to approve framework next month

To provide the country’s Rs 1.3 lakh crore start-up sector a serious go at listing, the Securities and Exchange Board of India (Sebi) might further relax the proposed framework in this regard.

According to sources, the capital markets regulator could considerably bring down the entry barrier for investor and also dilute the disclosure requirement for companies wanting to list on the soon-to-be-introduced listing and trading platform.

Sebi is reportedly planning to set the minimum application size at Rs 5 lakh, half of what it had proposed in the discussion paper titled ‘Alternate capital raising platform’, issued in March (with comments invited till April 20). Additionally, the minimum trading lot size could be reduced to Rs 3 lakh from the proposed Rs 5 lakh.

The disclosure requirement would not require start-ups to disclose objects of an issue if the money was raised for commercial purposes. The basis of the issue price would require disclosures as deemed fit by the issuer, and disclosure of litigation depending on its relevance.

“The regulator has collected and analysed all the public comments and some have been accepted by the board. The regulations are likely to be cleared in the next board meeting, slated for end-June,” said a source close to the developments.

These aspects were deliberated upon in the recent meeting of Sebi's Primary Market Advisory Committee.

Sebi had, on the lines of The Jumpstart Our Business Start-ups Act or JOBS Act in the US, proposed a separate platform for listing of start-ups, with an easier regulatory framework. The latter, however, was to be only for seasoned institutional investors. Retail or small investors were to be kept out through high entry barriers.

“The Rs 10 lakh application size and Rs 5 lakh trading lot was set to keep retail investors from investing in these issues. However, as the retail investor generally is not categorised by investment of more than Rs 2 lakh we are mulling to reduce the two,” said a source.

Sebi had already prescribed a lenient disclosure regime in the discussion paper and this could be tweaked further, sources indicated. For instance, a company planning to list on the start-up platform might not have to carry the fund raising disclaimer in its advertisements. A company listing on the main exchange has to compulsory inform the public that it plans to raise capital.

Sharad Sharma, co-founder, iSpirit, a technology think-tank that worked with Sebi on the discussion paper, says as the platform is not meant for the general public, the disclosure requirements need not be very stringent. “The Initial Public Offers of these companies will not be targeted at the public at large,” he noted.

The discussion paper had proposed to keep the lock-in for promoters and non-promoters at six months. This could also be relaxed to ‘no lock-in’. Sharma says, “Typically, under the current framework, a promoter gets 20 per cent equity capital, while the rest is leveraged money, borrowed from banks. So, essentially, the lock-in requirement is to safeguard the lenders by ensuring the promoters don’t run away after listing. If you look at any of the new-age tech companies, there is hardly any debt on their books. Also, they are professionally managed and most of the promoter equity is sweat equity. Therefore, it doesn’t make any sense to treat them as your typical promoters and subject them to a lock-in period after listing.”

Tech companies account for less than 15 per cent of the Indian capital market compared to 40 per cent in the US.