The market regulator announced easier listing norms for start-ups, new framework for promoters in listed companies to be reclassified as public shareholders, made electronic IPOs mandatory for companies listing from January 1, 2016, and reduced the minimum public holding requirement for listed companies wishing to raise further capital from the markets.
The SEBI Board met at Mumbai on June 23, 2015. Highlights of the decisions taken are as follows:
1. Streamlining process of public issues- Obviating the need to issue cheques:
Initial Public Offering (IPO) process streamlined to, reduce time period for listing of issues from T+12 days to T+6 days, increase reach of retail investors to access the IPO and reduce the cost of public issues. With this issuers will have faster access to the capital raised and investors will have early liquidity.
2. Simplified framework for capital raising by technological start-ups and other companies.
Enabling provisions approved for capital raising by technological start-ups and other companies through Institutional Trading Platform.
3. Fast Track Issuances through FPOs or Rights Issue:
Requirement of market capitalization of public shareholding of the issuer for Fast Track Issues (FTI) reduced to Rs. 1000 crore in case of Follow on public offering (FPO) and Rs. 250 crore in case of rights issue. This will help more listed companies to raise further capital using fast track route.
4. Review of Offer for Sale (OFS) through stock exchange mechanism
Changes proposed to encourage greater retail participation in OFS.
5. Reclassification of Promoters as Public:
A rationalised, simple framework put in place for reclassification of promoters as public. The proposed framework will bring in consistency and also enable investors to take informed decisions based on any such move by the company / promoters
6. Annual Report for 2014-15
Annual Report for 2014-15 approved by the Board.
The details of some of the decisions taken are as follows:
1. Streamlining the Process of Public Issues - Obviating the need to issue cheques
In order to reduce the post-issue timeline for listing from existing T+12 days to T+6 days, increase the reach of retail investors and reduce the costs involved in public issue of equity shares and convertibles, Board took the following decisions:
2. Simplified Framework for Capital Raising by technological start ups and other companies on Institutional Trading Platform.
The Board undertook a review of the extant regulatory framework in the primary market and noted the suggestions of market participants on making the existing avenues for capital raising amenable for accommodating a larger number of start-up companies. Based on the same, the Board approved the following proposals to amend the regulations concerning the ITP Platform:
The said platform will be made accessible to:
4. Review of Offer for Sale (OFS) of Shares through stock exchange mechanism
A discussion paper was floated on the review of Offer for Sale of Shares (OFS) through Stock Exchange mechanism. The Board considered the comments / suggestions received on the discussion paper and approved the following changes to the present OFS framework:
5. Re-classification of Promoters as Public
In order to put in place a policy framework with respect to re-classification of promoters in listed companies as public shareholders under various circumstances, the Board has approved the proposal for putting in place a regulatory framework for the purpose.
Existing promoter of a listed entity may cease to be a promoter and/or re-classify itself as public in the following circumstances, on compliance with conditions stated thereunder:
Pursuant to change in promoter
Inheritance
6. SEBI Annual Report: 2014-15
The Board considered and approved the SEBI Annual Report: 2014-15. In compliance with Section 18(2) of SEBI Act, 1992, the same Annual Report would be submitted to the Central Government.
7. FMC- SEBI merger
The Board also discussed operational issues relating to the merger of Forward Markets Commission (FMC) with SEBI.
8. Recommendations of the Depository System Review Committee (DSRC)
An expert committee was constituted by SEBI, to inter-alia review and assess the depository system on the basis of CPSS-IOSCO principles so as to benchmark with global best practices. In its meeting held on November 19, 2014 the Board broadly accepted the recommendations of the committee.
The Board today reviewed the status of the implementation of recommendations and noted that the Depositories have been advised to implement the following:
1. Streamlining process of public issues- Obviating the need to issue cheques:
Initial Public Offering (IPO) process streamlined to, reduce time period for listing of issues from T+12 days to T+6 days, increase reach of retail investors to access the IPO and reduce the cost of public issues. With this issuers will have faster access to the capital raised and investors will have early liquidity.
2. Simplified framework for capital raising by technological start-ups and other companies.
Enabling provisions approved for capital raising by technological start-ups and other companies through Institutional Trading Platform.
3. Fast Track Issuances through FPOs or Rights Issue:
Requirement of market capitalization of public shareholding of the issuer for Fast Track Issues (FTI) reduced to Rs. 1000 crore in case of Follow on public offering (FPO) and Rs. 250 crore in case of rights issue. This will help more listed companies to raise further capital using fast track route.
4. Review of Offer for Sale (OFS) through stock exchange mechanism
Changes proposed to encourage greater retail participation in OFS.
5. Reclassification of Promoters as Public:
A rationalised, simple framework put in place for reclassification of promoters as public. The proposed framework will bring in consistency and also enable investors to take informed decisions based on any such move by the company / promoters
6. Annual Report for 2014-15
Annual Report for 2014-15 approved by the Board.
The details of some of the decisions taken are as follows:
1. Streamlining the Process of Public Issues - Obviating the need to issue cheques
In order to reduce the post-issue timeline for listing from existing T+12 days to T+6 days, increase the reach of retail investors and reduce the costs involved in public issue of equity shares and convertibles, Board took the following decisions:
- Presently more than 99.5 % applications are received from centres where ASBA facility is available. Based on an analysis of a few public issues, in terms of amount, ASBA applications account for 99.90% of the total bid amount received from all investors. Considering the reach and advantages of ASBA, it shall now be mandatory for all investors to make ASBA applications. Amongst many other significant advantages, ASBA enables investors to give the mandate for payment of application money in the application form itself without suffering loss of interest for the intervening period. It also obviates the hassle of refund of money by the issuer as per the difference in application amount and the amount for which shares are finally allotted.
- In order to substantially enhance the points for submission of applications, Registrar and Share Transfer Agents (RTAs) and Depository Participants (DPs) shall also be allowed to accept application forms (both physical as well as online) and make bids on the stock exchange platform. This will be over and above the stock brokers and banks where such facilities are presently available.
- To help intermediaries and banks to modify their existing systems and train their staff and also enable the investors to adapt to the new system, there will be a phase-in period of 6 months. Accordingly, a public issue which opens on or after January 01, 2016 will have to follow the new system.
2. Simplified Framework for Capital Raising by technological start ups and other companies on Institutional Trading Platform.
The Board undertook a review of the extant regulatory framework in the primary market and noted the suggestions of market participants on making the existing avenues for capital raising amenable for accommodating a larger number of start-up companies. Based on the same, the Board approved the following proposals to amend the regulations concerning the ITP Platform:
- The platform shall now be called as Institutional Trading Platform (ITP) and shall facilitate capital raising as well.
The said platform will be made accessible to:
- companies which are intensive in their use of technology, information technology, intellectual property, data analytics, bio-technology, nano-technology to provide products, services or business platforms with substantial value addition and with at least 25% of the pre-issue capital being held by QIBs (as defined in SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009), or
- Any other company in which at least 50% of the pre-issue capital is held by QIBs.
- No person (individually or collectively with persons acting in concert) in such a company shall hold 25% or more of the post-issue share capital.
- Considering the nature of business of companies which may list on the said platform, disclosure may contain only broad objects of the issue and there shall be no cap on amount raised for General Corporate Purposes. Further, the lock in of the entire pre-issue capital shall be for a period of 6 months from the date of allotment uniformly for all shareholders.
- As the standard valuation parameters such as P/E, EPS, etc. may not be relevant in case of many of such companies, the basis of issue price may include other disclosures, except projections, as deemed fit by the issuers.
- Companies intending to list on the proposed ITP, shall be required to file draft offer document with SEBI for observations, as provided in SEBI (ICDR) Regulations, 2009.
Only two categories of investors, i.e.
- Institutional Investors (QIB as defined in SEBI (ICDR) Regulations, 2009 along with family trusts, systematically important NBFCs registered with RBI and the intermediaries registered with SEBI, all with net-worth of more than Rs. 500 crore) and
- Non-Institutional Investors (NIIs) other than retail individual investors can access the proposed ITP.
- In case of public offer, allotment to institutional investors may be on a discretionary basis whereas to NIIs it shall be on proportionate basis. Allocation between the said two categories shall be in the ratio of 75% and 25%, respectively.
- In case of discretionary allotment to institutional investors, no institutional investor shall be allotted more than 10% of the issue size. All shares allotted on discretionary basis shall be locked-in in line with requirements for lock-in by Anchor Investors i.e. 30 days at present.
- The minimum application size in case of such issues shall be Rs. 10 lakhs and the minimum trading lot shall be of Rs. 10 lakhs.
- The number of allottees in case of a public offer shall be 200 or more.
- The company will have the option to migrate to main board after 3 years subject to compliance with eligibility requirements of the stock exchanges.
- For Category I and II AIFs, which are required under the SEBI (Alternative Investment Funds) Regulations, 2012 to invest a certain minimum amount in unlisted securities, investment in shares of companies listed on this platform may be treated as investment in 'unlisted securities' for the purpose of calculation of the investment limits.
Grandfathering of existing companies listed on SME-ITP:
xiv. The existing companies listed on SME-ITP may continue to be guided by the existing regulatory framework for them including applicable relaxations from compliance with corporate governance requirements.
Rationalisation of disclosures for proposed ITP as well as main board:
xv. Further, in order to rationalize the disclosures requirements for all issuers whether intending to list on the main board or the proposed ITP, it has been decided that the disclosures in offer document with respect to group companies, litigations and creditors shall be in accordance with policy on materiality as defined by the issuer. However, all relevant disclosures shall be available on the website of the issuer. Also, the product advertisements of an issuer will not be required to give details of public/rights issue.
3. Fast Track Issuances - Follow on Public Offerings and Rights Issues
In order to enable more number of listed companies to raise further capital using fast-track route, Board approved the proposal to reduce the minimum public holding requirement from Rs. 3000 crore to Rs. 1000 crore in case of FPO and to Rs. 250 crore in case of rights issue, subject to compliance with following additional conditions:
xiv. The existing companies listed on SME-ITP may continue to be guided by the existing regulatory framework for them including applicable relaxations from compliance with corporate governance requirements.
Rationalisation of disclosures for proposed ITP as well as main board:
xv. Further, in order to rationalize the disclosures requirements for all issuers whether intending to list on the main board or the proposed ITP, it has been decided that the disclosures in offer document with respect to group companies, litigations and creditors shall be in accordance with policy on materiality as defined by the issuer. However, all relevant disclosures shall be available on the website of the issuer. Also, the product advertisements of an issuer will not be required to give details of public/rights issue.
3. Fast Track Issuances - Follow on Public Offerings and Rights Issues
In order to enable more number of listed companies to raise further capital using fast-track route, Board approved the proposal to reduce the minimum public holding requirement from Rs. 3000 crore to Rs. 1000 crore in case of FPO and to Rs. 250 crore in case of rights issue, subject to compliance with following additional conditions:
- In case of rights issue, promoters shall not renounce their rights, except to the extent of renunciations within the promoter group, or for the purposes of complying with minimum public shareholding norms;
- Annualized delivery based trading turnover requirement of 10% of the total paid up capital;
- No conflict of interest between the lead manager and the issuer or its group or associate company in accordance with applicable SEBI Regulations;
- Shares of the company should not have been suspended from trading as a disciplinary measure in past 3 years;
- &Issuer, promoter group and directors of the issuer should not have settled any alleged violation of securities laws through the consent mechanism with the Board in last 3 years. This is in addition to the existing condition that no show-cause notices should have been issued or prosecution proceedings initiated by SEBI or pending against the issuer or its promoters or whole time directors.
4. Review of Offer for Sale (OFS) of Shares through stock exchange mechanism
A discussion paper was floated on the review of Offer for Sale of Shares (OFS) through Stock Exchange mechanism. The Board considered the comments / suggestions received on the discussion paper and approved the following changes to the present OFS framework:
- To ensure increased retail participation in the OFS process, OFS notice shall be continued as per present practice i.e. latest by T-2 days, however, T-2 day shall be reckoned from banking day instead of trading day.
- To simplify the bidding process for retail investors, it would be mandatory for the seller to provide the option to retail investors to place their bids at cut off price (default option) in addition to placing price bids.
5. Re-classification of Promoters as Public
In order to put in place a policy framework with respect to re-classification of promoters in listed companies as public shareholders under various circumstances, the Board has approved the proposal for putting in place a regulatory framework for the purpose.
Existing promoter of a listed entity may cease to be a promoter and/or re-classify itself as public in the following circumstances, on compliance with conditions stated thereunder:
Pursuant to change in promoter
- When a new promoter replaces the previous promoter subsequent to an open offer or in any other manner, re-classification shall be permitted subject to approval of shareholders in the general meeting.
- Shareholders need to specifically approve whether the outgoing promoter can hold any Key Management Personnel (“KMP”) position in the company. In any case, the outgoing promoter may not act as KMP for a period of more than 3 years from the date of shareholders’ approval.
- The outgoing promoter can’t hold more than 10% shares of the company.
Inheritance
- In case of transmission/succession/inheritance, the inheritor shall be classified as promoter.
Company not having any identifiable promoter
Existing promoters may be re-classified as public in case the company becomes professionally managed and does not have any identifiable promoter. A company will be considered as professionally managed for this purpose, if:
Existing promoters may be re-classified as public in case the company becomes professionally managed and does not have any identifiable promoter. A company will be considered as professionally managed for this purpose, if:
- No person or group along with Persons Acting in Concert (PACs) taken together holds more than 1% shares of the company (including any convertibles/outstanding warrants/ADR/GDR Holding).
- Mutual Funds/Banks/Insurance Companies/Financial Institutions/FPIs can each hold up to 10% shares of the company (including any convertibles/outstanding warrants/ADR/GDR Holding).
- Erstwhile promoters and their relatives may hold KMP position in the company only subject to shareholders’ approval and for a period not exceeding 3 years from the date of shareholders’ approval.
- The following conditions shall also be applicable:
- The outgoing promoter shall not have any special rights through any formal or informal arrangements.
- The outgoing promoter shall not, directly or indirectly, exercise control over the affairs of the company.
- Increase in public shareholding pursuant to re-classification of promoters may not be counted towards achieving compliance with minimum public shareholding (MPS) requirement under clause 40A of equity listing agreement read with rule 19A of the Securities Contracts (Regulations) Rules, 1957 (SCRR).
- If any public shareholder seeks to re-classify itself as promoter, it shall be required to make an open offer to the shareholders and would not be eligible for exemption from the said obligation.
- The event of re-classification may be disclosed as a material event in accordance with the listing agreement/regulations.
- In order to remove difficulties in specific cases the Board authorized the Chairman, SEBI to take required measures on a case to case basis.
6. SEBI Annual Report: 2014-15
The Board considered and approved the SEBI Annual Report: 2014-15. In compliance with Section 18(2) of SEBI Act, 1992, the same Annual Report would be submitted to the Central Government.
7. FMC- SEBI merger
The Board also discussed operational issues relating to the merger of Forward Markets Commission (FMC) with SEBI.
8. Recommendations of the Depository System Review Committee (DSRC)
An expert committee was constituted by SEBI, to inter-alia review and assess the depository system on the basis of CPSS-IOSCO principles so as to benchmark with global best practices. In its meeting held on November 19, 2014 the Board broadly accepted the recommendations of the committee.
The Board today reviewed the status of the implementation of recommendations and noted that the Depositories have been advised to implement the following:
- Develop a mechanism to maintain complete reconciled record of total issued and listed capital, including both physical and dematerialized shares.
- Risk Management Policy at the Depositories and Information Technology (IT) infrastructure of the Depository Participants.
- Popularization of e-KYC among Depository Participants.
- Put in place systems to facilitate generation and dispatch of single Consolidated Account Statements (CAS) for investors having investments in securities and Mutual Funds, which has been implemented with effect from March 01, 2015.
9. Interim Use of Funds by the Issuers
In order to prevent misuse of funds during the interim period pending utilization by the issuer, for funds raised through public / rights issue in accordance with SEBI (ICDR) Regulations, 2009, the Board decided that net Issue proceeds pending utilization (for the stated objects) shall be deposited only in the Scheduled Commercial Banks included in the Second Schedule of Reserve Bank of India Act, 1934. In case of public / rights issue of Indian Depository Receipts, the issuer shall keep the funds in a bank having a credit rating of 'A' or above by an international credit rating agency.
In order to prevent misuse of funds during the interim period pending utilization by the issuer, for funds raised through public / rights issue in accordance with SEBI (ICDR) Regulations, 2009, the Board decided that net Issue proceeds pending utilization (for the stated objects) shall be deposited only in the Scheduled Commercial Banks included in the Second Schedule of Reserve Bank of India Act, 1934. In case of public / rights issue of Indian Depository Receipts, the issuer shall keep the funds in a bank having a credit rating of 'A' or above by an international credit rating agency.
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