SEBI

Consultation Paper- Review of IGP framework under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018

The Securities Exchange Board of India has issued a notification to review the framework of Innovators Growth Platform under SEBI ICDR regulations. Based on the feedback and suggestions from market participants and stakeholders, SEBI is revisiting existing regulatory norms that are applicable to the Innovators Growth Platform. In this article, we are explaining SEBI regulation for the IGP framework.

SEBI in a consultation paper has now proposed nine changes to the IGP framework based on inputs from start-ups and other market participants. It sought comments from public on the same by 11^th January, 2021.

Objective of Consultation paper

The main objective of this paper is to get comments or views from various stakeholders including start-ups, market intermediaries and public on the IGP framework under Chapter X of SEBI Issue of Capital and Disclosure Requirements Regulations.

IGP Framework: Present regulatory framework

Chapter X of the SEBI ICDR Regulations, 2018, provides stipulations for issuers seeking listing of their specified securities on the stock exchange under IGP framework.

Currently the requirements for issuer companies to list under IGP are as follows:

• 25% of the pre-issue capital of the company should have been held for minimum of two years by-
• Qualified institutional buyers;
• Family trust (net worth> 500 crore);
• Accredited investors for the purpose of IGP (individual with a net worth> 5 crore and income> 50 lakh/ body corporate with a net worth > 25 crore);
• Regulated entities such as Foreign Portfolio investor, pooled investment fund with minimum assets under management > USD 150 million etc.
• Minimum net offer to public has to be in compliance with the norms of minimum public shareholding and minimum offer size to be 10 crore rupees.
• The minimum size of application and minimum trading lot has to be two lakh rupees and in multiples of two lakh rupees.
• The minimum number of allottees has to be 50 and allotment will be on the basis of proportionate.
• There is no need for minimum reservation of allocation to specific category of investors;
• Migration allowed to the main board if the company satisfies conditions for migrations.

IGP Framework: Proposals under consideration

The key proposals under consideration are as follows:

• Eligibility criteria

Currently in ICDR regulation terms, 25% of pre-issue capital is needed to be held by eligible investors for two years. The recommendation is that the period of holding of 25% of pre-issue capital to be held by eligible investors for two years could be reduced to 1 year.

• Lock-in

The entire pre-issue capital of shareholders is needed to be locked-in for a period of 6 months however equity shares held by a venture capital fund or alternative investment fund of category-I etc are exempted from such requirement provided such equity shares are locked-in  for 1 year period from the purchase date. The recommendation is that post issue lock-in requirements is not applicable for 1 year period from the date of purchase. In IGP framework also, similar exemptions could be provided.

• Accredited Investors

Currently the shareholding if Accredited Investors is only considered for upto 10% of pre-issue capital out of eligibility criteria of minimum 25% to be held by the eligible investors. Accredited Investors pre-issue shareholding could be considered for entire 25% instead of 10% presently of the pre-issue capital needed for meeting eligibility conditions norm. Moreover, family trusts could be included in the definition of accredited investors as it presently only includes individuals and body corporate.

• Differential voting rights/superior voting right equity shares

Under the current provisions under IGP framework, do not allow issuer companies to issue Differential voting rights/ superior voting right equity shares to promoters/founders as permitted for Main Board Companies. It has been proposed that companies under the Innovators Growth Platform framework could be allowed to issue Differential voting rights/ superior voting right equity shares to promoters/founders.

• Takeover requirements

As per SEBI (Substantial Acquisition of shares and takeover) Regulations, 2011, stipulate a 25% threshold for triggering an open offer. Moreover, any acquirer with PACs is required to disclose their aggregate shareholding when their shareholding reaches 5% and when there is a subsequent change of 2% in their shareholding.

It has been proposed that the Substantial Acquisition of shares and takeover Regulations of 201, stipulation for triggering open offer could be relaxed to a higher threshold of 49% from 25% provided that any change in control regardless of value of acquisition shall trigger open offer.  The threshold for disclosing the aggregate shareholding is proposed to be increased from the current 5% to 10% and when there is subsequent change of 5% in their shareholding. 

• Voluntary delisting

As per the regulations of ICDR, any company that intends to delist its shares from the IGP platform is required to comply with SEBI Delisting Regulations which involves among others process of reverse book building. It is suggested that delisting shall be considered if 75% of the total shareholding/voting rights are acquired. Moreover, when delisting, the floor price can be determined by delisting regulations with a new mandatory provision for premium for delisting which shall be justified by the acquirer.  

• Migration to the main board

As per ICDR regulations, IGP company will be eligible to trade on the main board of stock exchange if it fulfils the conditions for exchange. Moreover, if the IGP company fails to satisfy the requirements of profitability etc as required under Regulation 292(2) of the ICDR Regulations of 2018, then such company may migrate to the main board if 75% of its total capital is held by the QIBs. It has been suggested that eligibility requirements of having 75% of its total capital to be held by the QIBs on the date of application for migration to main board could be reduced to 40% from 75%.

Conclusion

The details of the above mentioned proposals and consultation paper on review of IGP framework^[1] is provided here – Consultation Paper- Review of IGP framework under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, Further, it is to be noted that the last date for giving comments on this paper is 11th January, 2021 (Monday).

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