Sebi to allow start-up listings on SME bourse
Regulator may tweak norms relating to paid-up capital, promoter shareholding
The Securities and Exchange Board of India (Sebi) is readying a framework to enable the listing of start-ups in the small and medium enterprises segment — a special platform aimed at promoting equity capital raising for small corporates.
The Securities and Exchange Board of India (Sebi) is preparing a framework to enable the listing of new-age companies on the small and medium enterprises (SME) segment — a special platform aimed at promoting equity capital-raising for small corporate houses.
According to sources, start-ups will be offered special relaxations on the SME platform in terms of net worth requirements and profitability. Several discussions were held among Indian stocks exchanges, Sebi and market participants on a new framework for start-up listing.
The move comes after institutional trading platform (ITP), a special segment for listing of new-age companies, failed to take-off.
Sources said the idea was to provide capital-raising opportunities to small- and mid-level start-ups who cannot list on the main board due to higher compliance norms and at the same time are reluctant to consider the ITP platform.
Though the ITP platform was designed to facilitate start-up listings, companies were a bit sceptical because of factors such as liquidity on the platform.
On the other hand, the SME platform has been successful in catering to the capital requirements of small-sized enterprises with over 200 listings to date.
According to Sebi’s regulations, a company listing on the start-up platform can have a maximum paid-up capital of ~250 million. However, start-ups who have raised money from private equity (PE) investors have higher paid-up capital, which disqualifies them from listing in this segment.
Since a large part of start-ups are either backed by PE or angel investors, the market regulator can also introduce the concept of professionally-managed companies for the SME segment. Such a development would enable PE investors and angel funds to exit through SME share sales without having to oblige with the compliance requirements of a promoter.
Under the current rules, promoters need to own at least a 20 per cent stake in the company. It also mandates them to have a minimum three years of experience in the same line of business.
“The discussions are in an advanced stage and we can expect an announcement in the next one month. Not just Sebi, even bourses have reached out to new-age companies seeking inputs. If the relaxations
are provided, the SME platform will emerge as a viable option for start-ups to raise capital,” said a source in the know.
Unlike the main board issuances, Sebi doesn’t directly regulate the SME initial public offerings (IPOs). Under the issue of capital and disclosure requirements regulations, bourses have been vested with the powers to scrutinise and approve all IPO documents of SMEs. The companies listed on the SME platform also file earning results once in six months against once in three months by the main-board companies.
Experts said there were lots of startups in India who had genuine capital requirements. The issue is more relevant in the context of smaller start-ups where big-ticket venture capitalist firms do not invest. Many of such smaller start-ups are forced to shut down due to lack of financial resources.
“There are many start-ups who need growth capital. While bigger start-ups can
always tap PE investors, smaller ones have limited options to raise capital currently. Providing a platform for them to list would be a positive step not just for these companies, but also for the investors as they get an opportunity to be a part of the growth story,” said Harish HV, partner, Grant Thornton.
Sebi had come up with the ITP regulations in 2015 to facilitate listing of newage companies. However, the platform failed to attract companies due to compliance requirements and also concerns about liquidity in the platform. Also the fundraising scenario in the segment has also witnessed a drastic change. Back then, there was a flush of investments from PE and venture capital investors into start-ups. But things look different now as fresh investments have relatively dried up and the valuations of the companies have also come down due to lack to demand.