Startup SME Listing & Institutional Trading PlatformLISTING OF START-UPS AND GROWING COMPANIES WITHOUT AN IPO

SEBI startup listing norms• The much awaited Alternate Capital Raising Platform is

certainly a welcome initiative at least from an intent perspective. The Government and SEBI seems to have made the right noises in terms of permitting tech, product and e-commerce startups access capital markets as is prevalent globally. The possibility of a listing for a startup is a huge boon as it gives the much needed liquidity of holding an early exit option for investors.

…continued• Startups have been permitted to issue ESOPs to their promoters

and directors who hold more than 10 percent unlike other companies who are restricted from doing so.• In June 2015, SEBI allowed the exchanges’ institutional trading

platform (ITP) to be used for capital raising by start-ups which are intensive in their use of technology, information technology, intellectual property, data analytics, biotechnology or nano-technology, to provide products, services or business platforms with substantial value addition.• However, even among these companies, only those that have at

least 25% of their pre-issue capital being held by qualified institutional buyers (QIBs) were allowed to access the exchange platform.

Implementation and challenges• During the year 2016-17, the Government took a number of

steps towards facilitating ease of doing business for startups. The Norms under foreign exchange laws have been relaxed to allow startups to raise external commercial borrowings.• Foreign Venture Capital Investors (FVCIs) who, hitherto,

could invest in only certain specified sectors have now been permitted to invest in all startups, irrespective of the sector. Startups are permitted to issue sweat equity shares up to 50 percent of their paid up capital as against other companies which are restricted from issuing sweat equity shares in excess of 25 percent of their paid-up capital.

ISSUE OF SPECIFIED SECURITIES BY SMALL AND MEDIUMENTERPRISESSEBI (ICDR) REGULATIONS (CHAPTER XA)

SEBI (ICDR) Regulations (Chapter XA)• Post-issue face value capital does not exceed 10 crore• Post issue face value capital is more than 10 crore rupees

and upto 25 crore • Minimum number of allottees - 50.• Minimum application value – Rs. 1,00,000• 100 % underwriting by merchant bankers and

underwriters.• The merchant banker/s shall underwrite at least fifteen

per cent of the issue size on his/ their own account/s.

Migration to SME exchange / Main Board• A listed issuer whose post-issue face value capital is less

than twenty five crore rupees may migrate its specified securities to SME exchange if its shareholders approve such migration by passing a special resolution through postal ballot to this effect.• An issuer, whose specified securities are listed on a SME

Exchange and whose post issue face value capital is more than ten crore rupees and upto twenty five crore rupees, may migrate its specified securities to Main Board if its shareholders approve such migration by passing a special resolution through postal ballot to this effect.

Eligibility Criteria of BSE SME (SME Platform)• Net Tangible assets of at least Rs. 3 crores • Net-Worth (excluding revaluation reserves) of at least Rs. 3 crores• The post-issue paid up capital of the company shall be at least Rs.

3 crores and should not exceed 25 crores• Track record of distributable profits for at least two years• The minimum application and trading lot size shall not be less

than Rs. 1,00,000• The issue shall be 100% underwritten and Merchant Bankers shall

underwrite 15% in their own account• Mandatory Market making for atleast 3 years

…continuedOther Requirements• Companies shall mandatorily have a website.• For listing on BSE SME platform promoters will

mandatorily be required to attend an interview with the Listing Advisory Committee.

Eligibility Criteria of EMERGE - NSE SME (SME Platform)• The post-issue paid up capital of the company (face

value) shall not be more than Rs. 25 crore• The company should have track record of atleast 3 years• The company should have positive cash accruals

(earnings before depreciation and tax) from operations for atleast 2 financial years preceding the application and its net-worth should be positive

…continuedOther Disclosure (in the offer document)• Any material regulatory or disciplinary action by a stock exchange

or regulatory authority in the past one yearith the Listing Advisory Committee.• The applicant, promoters/promoting company(ies), group

companies, companies promoted by the promoters/promoting company(ies) litigation record, the nature of litigation, and status of litigation.• In respect of the track record of the directors, the status of

criminal cases filed or nature of the investigation being undertaken with regard to alleged commission of any offence by any of its directors

LISTING ON INSTITUTIONAL TRADING PLATFORMSEBI (ICDR) REGULATIONS (CHAPTER XC)

LISTING ON INSTITUTIONAL TRADING PLATFORMSEBI (ICDR) Regulations (Chapter XC):• The provisions of this chapter shall apply to entities

which seek listing of their specified securities exclusively on the institutional trading platform either pursuant to a public issue or otherwise.• The institutional trading platform shall be accessible to

institutional investors and non-institutional investors.

Eligibility Criteria• An entity which is intensive in the use of technology,

information technology, intellectual property, data analytics, bio-technology or nano-technology to provide products, services or business platforms with substantial value addition and at least twenty five per cent of its pre-issue capital is held by qualified institutional buyer.• No person, individually or collectively with persons

acting in concert, shall hold twenty five per cent or more of the post-issue share capital in an entity specified in sub-regulation

Listing without public issue• File a draft information document along with necessary

documents with the Board in accordance with these regulations• Regulations relating to the following shall not be

applicable in case of listingwithout public issue:(i) allotment; (ii) issue opening / closing;(iii) advertisement; (iv) underwriting;(v) regulation 26(5); (vi) pricing;(vii) dispatch of issue material;

…continued• The entity shall obtain in-principle approval from the

recognised stock exchanges on which it proposes to get its specified securities listed.• The entity shall list its specified securities on the recognised

stock exchange within thirty days: from the date of issuance of observations by the Board; or from the expiry of the period stipulated in sub-regulation (2) of regulation 6, if the Board has not issued any such observations.• Provisions relating to minimum public shareholding shall not

apply to entities listed on institutional trading platform without making a public issue.

Listing pursuant to public issue• File a draft information document along with necessary

documents with the Boa• The minimum application size shall be ten lakh rupees.• The number of allottees shall be more than two hundred.• The allocation in the net offer to public category shall be as

follows:(a) seventy-five per cent to institutional investors:(b) twenty-five per cent to non-institutional investors;

Exit of entities listed without making a public issue• An entity whose specified securities are listed on the

institutional trading platform without making a public issue may exit from that platform, if-

(a) its shareholders approve such exit by passing a special resolution through postal ballot where ninety per cent of the total votes and the majority of non-promoter votes have been cast in favor of such proposal; and

(b) the recognised stock exchange where its shares are listed approve of such an exit.