The Ministry of Corporate Affairs (MCA) has nudged the market regulator Sebi to partially roll back a relaxation proposed for listing of startups in India.
Currently, the market regulator has created a special platform to cater to the startups looking for a listing, which is called Innovators Growth Platform (IGP). This is a niche platform that can only be accessed by big ticket institutions and wealthy investors, and hence has limited liquidity compared to the mainboard where all the bluechip stocks trade.
However, if the startup does not have the profit track record, it can still migrate to the mainboard provided 75% of the shareholders of the company are institutional investors. Several startups and VC firms made representations to Sebi seeking a relaxation to this rule since it was difficult to achieve 75% institutional holding.
Even among the blue-chips, only a handful of companies have such high institutional holding. Based on the industry feedback, Sebi proposed to lower the threshold to 40% from 70%.
However, MCA opposed this relaxation saying the limit was too lenient and instead recommended that the threshold should be 50%. Sebi eventually agreed. Emails sent to Sebi and MCA remained unanswered.
“MCA has commented that the 40% dilution is too low and must be reviewed so that the Company does not take unfair advantage of having first listing with IGP and then getting moved to Mainboard,” said minutes of Sebi board meeting dated March 25,2021. “In view of the comments from MCA...we may reduce this stipulation of 75% of capital with QIBs (qualified institutional investors) to 50% instead of 40% as proposed in the consultation paper.”
Currently, the market regulator has created a special platform to cater to the startups looking for a listing, which is called Innovators Growth Platform (IGP). This is a niche platform that can only be accessed by big ticket institutions and wealthy investors, and hence has limited liquidity compared to the mainboard where all the bluechip stocks trade.
A startup that has listed on the IGP platform can migrate to the mainboard provided the company meets several conditions, including a profit of at least Rs 15 crore in the last three years.
However, if the startup does not have the profit track record, it can still migrate to the mainboard provided 75% of the shareholders of the company are institutional investors. Several startups and VC firms made representations to Sebi seeking a relaxation to this rule since it was difficult to achieve 75% institutional holding.
Even among the blue-chips, only a handful of companies have such high institutional holding. Based on the industry feedback, Sebi proposed to lower the threshold to 40% from 70%.
However, MCA opposed this relaxation saying the limit was too lenient and instead recommended that the threshold should be 50%. Sebi eventually agreed. Emails sent to Sebi and MCA remained unanswered.
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“MCA has commented that the 40% dilution is too low and must be reviewed so that the Company does not take unfair advantage of having first listing with IGP and then getting moved to Mainboard,” said minutes of Sebi board meeting dated March 25,2021. “In view of the comments from MCA...we may reduce this stipulation of 75% of capital with QIBs (qualified institutional investors) to 50% instead of 40% as proposed in the consultation paper.”
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