The institutional trading platform will seek to put India at par with other developed countries such as the US, which facilitates easier fundraising options. Technology companies are a small part of stock market capitalisation in India. From Page 1 In India, technology companies are a small part of stock market capitalisation compared with the US, the UK and Hong Kong. Sebi feels this can only be fixed if homegrown technology companies list in India. The regulator is set to waive the `promoter’ requirement for startups as founders typically have a lower holding in these companies, often less than 20%, and a larger proportion is held by venture capitalists.
“The current model of IPO in India assumes a promoter who brings in initial equity and banks that provide debt. This is not how technology companies are built,“ said Sharad Sharma, cofounder of iSPIRT. “Here, the founder is a professional who brings skills and expertise, and gets sweat equity.Then angel investors and venture capitalists step in to provide risk capital and buy equity . Typically, at the time of the IPO (initial public offer), there is no debt in the company . This is a completely different situation from the traditional company-building paradigm. Therefore, it’s wise of Sebi to build a new bourse for knowledgebased technology companies.“
A think tank dedicated to promoting Indian software product companies, iSPIRT was part of the consultative process with Sebi.
SHORTER LOCK-IN FOR PRE-ISSUE CAPITAL
Besides this, the lock-in for pre-issue capital may be six months for all shareholders rather than three years for 20% of the promoter shareholding and one year for the remainder, said Sandip Bhagat, partner at law firm S&R Associates, which represented MakeMyTrip during its US listing.
“This is a positive move and will greatly assist Indian companies where the promoters are not easily identifiable or have the necessary shares for the 20% promoter contribution,“ he said. “In countries such as the US, there is no statutory lock-up, although there may be contractual lock-up with the underwriters and limitations on resale by affiliates and controlling shareholders.“
Sebi’s primary market advisory committee has suggested that the promoter holding in knowledgebased companies, including persons acting in concert, should not be more than 25% of the post-issue capital, said a person aware of the development.
“Also, after reviewing public comments, it has suggested that the minimum application size as well as trading lot should be Rs 5 lakh,“ the person said, adding the number of allottees in such issues should not be more than 200.
EASIER DISCLOSURE NORMS
The regulator will also relax disclosure norms relating to the use of funds raised in maiden public stock offerings by such companies.They will be allowed to use IPO proceeds for general corporate purposes without specifying the level of detail currently required.The rules currently stipulate that no more than 25% of the funds raised can be used for general corporate purposes. “This will greatly help companies keep funds for future uses which are not immediately ascertainable,“ Bhagat said.
Companies will also have the option of migrating to the main board after two years on the alternative platform and may also be allowed to provide market-making facility for trading in shares. The regulator will allow both capital raising and offer for sale on the institutional trading platform. The current rules only permit companies to raise equity capital through public issues though they can make private placements.
“It appears that these companies will initially be permitted to list only on an alternative trading platform. Some Indian companies have become large in size with high valuations (such as Flipkart, Ola and Snapdeal) and should be permitted to access the main board and not have to consider the uncertainty of listing on an untested platform,“ Bhagat said. “Also, these companies should have access to all investors (including retail investors). Retail investors in the US have been able to participate in the IPOs of companies with exciting stories such as Facebook, LinkedIn and Alibaba. Indian regulations should be amended to permit such companies to list on the main board,“ he said.
STRIKING A BALANCE
With the proposed platform, Sebi has been able to strike a good bal ance between protecting small retail investors and providing the flexibility that knowledge-based companies need, experts said.
“There is good interest in the new alternative fundraising platform, ITP. Now the focus has to be on preventing misuse,“ Sharma said.“Many traditional companies also want to leverage the liberal listing norms and are making a case for opening up ITP to them as well.This should be avoided right now.ITP has been designed for technology-based companies built on the back of sweat equity and angel venture capital. Their company metrics differ substantially from traditional companies (hence the need for different listing norms). If we open up ITP to traditional companies, there will be an increased danger of misuse.“
The regulator may review the platform’s features after gaining some experience, the official said.