SEBI Lays Framework For Startups To Shift To Main Stock Exchange After One Year

To help startups move from the Innovators Growth Platform of stock exchanges to the main board, the Securities and Exchange Board of India has come out with a new set of framework to allow them to shift after one year to regular trading.

The framework comes after SEBI board in August approved a detailed set of norms for startups' listing.

SEBI, in a notification issued on Monday, provided companies listed on the Innovators Growth Platform pursuant to an initial public offer "an option to trade under the regular category of the main board of the stock exchange."

Under the new rules, a company would need to have a profitability/networth track record of three years or at least 75 percent of its shareholding should be with qualified institutional investors.

The minimum promoter contribution would need to be 20 percent, which would be locked in for three years. The period of earlier six-month lock-in served at the time of listing on startup platform would also be included in the three-year period for the main board, it added.

Any company desirous of getting listed on the main board of stock exchange for regular trading of their shares needs to follow stringent disclosure and eligibility norms and launch an initial public offer. But the rules are much more relaxed for startups looking to list their shares on the new IGP, where trading activities are relatively restricted.

However, there has not been much traction for this platform.

SEBI said a company would need to be listed on the IGP for at least one year for migration and have at least 200 shareholders at the time of migration.

Besides, the company or any of its promoters and directors should not have been barred from accessing the capital market. They should also not have been classified as wilful defaulters or fugitive economic offenders. Also, none of the promoters or directors should be associated with a company barred from the capital market.

A detailed set of norms for listing on IGP was finalised by SEBI’s board in December 2018 and the regulator was asked at that time to decide on the requirements for migration of trading of shares from IGP to the main board in consultation with stock exchanges and other stakeholders.

SEBI discussed the draft norms with its own Primary Market Advisory Committee as well as the two leading bourses Bombay Stock Exchange and National Stock Exchange, pursuant to which a discussion paper was issued for public comments in May this year.

After taking into account comments received from merchant bankers, industry bodies, stock exchanges and others, SEBI finalised a detailed set of draft norms which was presented for its board's approval in August.

The new norms also require the company to have net tangible assets of at least Rs 3 crore, calculated on a consolidated basis, in each of the preceding three years, of which maximum 50 percent can be held in monetary assets.

For migration, the company also needs to have an average consolidated operating profit of at least Rs 15 crore during the preceding three years, with an operating profit having been recorded in all the three years. The net worth threshold should be at Rs 1 crore for each of the three preceding years.

In case the company has changed its name within the last one year, at least 50 percent of its consolidated revenue for the preceding one full year should have been earned from the activity indicated by the new name.

A company that is not in compliance with these financial thresholds would need to have 75 percent of its capital held by investors classified as Qualified Institutional Buyers.

SEBI also said the promoters' minimum contribution should be 20 percent of the total capital and it should be locked in for at least three years from the date of grant of approval for trading on the main board.

In case of a shortfall, a maximum of 10 percent can be contributed by alternative investment funds, foreign venture capital investors, scheduled commercial banks, public financial institutions or insurance companies without being identified as promoters, but subject to similar lock-in conditions.

Any excess promoter holding above 20 percent would be locked in for one year.

The lock-in condition would not apply to companies that have been listed on the IGP for three years or more.

The regulator said it has amended the Issue of Capital and Disclosure Requirements (Fourth Amendment) Regulations. The new regulation would come into force with immediate effect, it said.