Tax Insights
from India Tax & Regulatory Services
www.pwc.in
SEBI releases discussion paper on review of framework for
Institutional Trading Platform
August 2, 2016
In brief
In August 2015, Securities and Exchange Board of India (SEBI) had notified a simplified framework for raising of capital by technological start-ups and other companies on the institutional trading platform. Based on recommendations received, SEBI has now put forward certain proposals for discussion, which relax the requirements relating to listing on such platforms, to attract both investors and investees interested in the relevant market.
In detail
Background
SEBI had notified “Chapter XC – Listing on
Institutional Trading Platform (ITP)” under the SEBI (Issue of Capital and Disclosure Requirements) (Fourth Amendment) Regulations, 2015 on 14 August 2015.
These regulations provided for rules to be followed in case of listing of a specified
security on the ITP.
Entities eligible for listing on the ITP would be mainly start-up companies, including those that intensively use technology, information technology and intellectual property.
However, ITP has not received the expected response from either investors or investee companies.
Therefore, SEBI has now
released a discussion paper setting out certain
proposals that further relax the eligibility and threshold requirements for companies intending to list on the ITP, and for shareholders of and potential investors in such companies.
The SEBI has sought public comments on these
proposed changes before 14 August 2016. The proposals for changes to the ITP framework are enumerated below:
S No Parameter Existing Proposed
1 Change in title of Chapter XC
Existing name of the chapter is
“Listing on Institutional Trading Platform”
The chapter may be renamed as
“High-tech Start-up and other new business Platform”
2 Definition of
“institutional investors”
expanded
“Institutional investors” mean:
a) Qualified Institutional Buyers (QIB);
b) Family trust or
systematically important
‘Institutional investor’ means:
a) Qualified Institutional Buyers;
b) Family trust or systematically important NBFCs, all with net worth more than INR 5 billion,
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S No Parameter Existing Proposed
NBFCs, all with net worth more than INR 5 billion, as per the last audited financial statements
as per the last audited financial statements;
c) Category III Foreign Portfolio Investors
d) An entity meeting all the following criteria:
Pooled investment fund with minimum asset under
management of USD 150 million;
Registered with Financial Service Regulator in the jurisdiction in which it is a resident; and
Residents of certain countries as specifically restricted in the discussion paper
3 Pre-listing shareholding
a) QIB are required to hold at least 25% of pre-issue capital of an entity that intensively uses technology etc.
b) QIB holding of at least 50% is necessary in case of any other entity.
a) Holding by QIB to be replaced by holding by Institutional Investor as sought to be amended above.
b) Minimum pre-issue holding of 25% by institutional investor to be uniform for all companies, irrespective of sector of operation.
4 Cap on holding in the post-issue capital
No person, individually or collectively with persons acting in concert, shall hold 25% or more of the post-issue capital.
This requirement has been deleted.
5 Allocation in net offer to public
a) 75% for institutional investors; and b) 25% for Non-Institutional Investors
(NIIs)
a) Not less than 50% to institutional investors
b) Not more than 50% to NIIs 6 Discretionary
allotment to an individual institutional investor
Not more than 10% of the issue size Ceiling limit may be revised upward from 10% to 25%
7 Market making Not mandatory Market making may be made compulsory
for a minimum period of 3 years for issue size of less than INR 1 billion.
8 Lock-in period of pre-listing capital
Lock-in for a period of 6 months for all shareholders. However, such lock-in shall not apply to the following:
Lock-in period of 6 months may apply uniformly to all categories of
shareholders, without any exception.
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S No Parameter Existing Proposed
a) Shares arising out of employee stock options;
b) Equity shares held by venture capital fund or Category I alternative investment fund or foreign venture capital investor; and c) Equity shares held by person other
than promoters.
9 Minimum
trading lot
INR 1 million May be lowered to INR 0.5 million
The takeaways
According to SEBI, there are over 3,000 companies in India that could benefit from listing on the ITP. The minimum shareholding by institutional investors of 25%
has been extended to all sectors, thus providing other sectors with equal opportunity to enter into
the ITP. The enactment of such proposals may provide the much- needed impetus for ITP to take off.
Let’s talk
For a deeper discussion of how this issue might affect your business, please contact:
Tax & Regulatory Services – Mergers and Acquisitions Gautam Mehra, Mumbai +91-22 6689 1154
[email protected] Hiten Kotak, Mumbai +91-22 6689 1288 [email protected]
Tax Insights
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