Bullish on a vibrant start-up ecosystem in India, regulator the Securities and Exchange Board of India (SEBI), on Wednesday, said many new-age companies had initiated plans to get listed and the final rules for their listing would be notified within 7-10 days.
Promising an easier set of compliance requirements and other regulations for start-ups to get listed on a new platform, SEBI Chairman U. K. Sinha said such companies might lack a profitability track-record, but many of them had huge potential to become highly profitable.
The relaxations would include removal of caps on the money spent by such companies on publicity and advertisements as they needed to spend much more for such purposes, Mr. Sinha said.
There was also a significant likelihood that many of these companies would eventually become eligible in a few years for listing in the main market, thus enabling even the retail investors to participate directly in their growth story, the SEBI chief told PTI in an interview here.
Terming the proposed rules as game-changer in the primary market and to push entrepreneurship in the country, Mr. Sinha said the Institutional Trading Platform would allow the new technology companies, or start-ups, to get listed in the domestic market and raise funds easily without them going overseas for such requirements. “For them, we have a new system where only institutional investors, or people having at least Rs.10 lakh, can invest. So, we have protected the small investors from investing there, because these are the companies which are difficult to understand. They do not have a profitability track record. You look at any of these e-commerce companies, they are making losses. But going by certain valuation exercises, certain assessments of their businesses, certain global standards, there is a very strong likelihood that they will make very strong profits.”
Mr. Sinha, who himself has been very actively working on this new listing regime, said he along with other top SEBI officials actually travelled to Bangalore to understand the requirements of start-ups.
“We have done all this very proactively. I went to them in Bangalore to listen their concerns. We spent almost an entire day with them. We had a lot of representations. We heard the market participants and all other experts. Then, I invited them here (to SEBI office) and after a thorough discussion, we have implemented this,” he said.
Asked about his expectations for response to the new platform, Mr. Sinha said, “Their feedback is very positive. We are going to notify these regulations within 7-10 days, and I am hopeful that many of these companies, which were being approached by Singapore and New York exchanges earlier, would come and list here.
“I won’t say that all of them, but many of them would now start listing in India. Once even 2-3 companies list, you will find that there is a lot of progress thereafter.”
Mr. Sinha said it was not easy for a small investor to understand these metrics, and, therefore, it had been decided to make it an institutional platform and not a retail platform.
“But these companies can eventually come on the main board at a later stage after meeting the eligibility criteria and then even retail investors would be able to invest in those.
“We will be very happy if they grow further and come on the board and I am sure many of them would eventually do that.
But that would happen after a few years, not immediately,” he said.
Mr. Sinha said the relaxations were being given because there were only institutional and large investors who would be allowed to invest here.
“These are the companies which do not have a profitability track record, and, more importantly, they do not have tangible assets. Earlier the concept of the company used to be that they will have a plant, land, machinery, raw materials, stocks etc. But these companies have got none of these. Everything is in the virtual world. So, we have said these requirements we will do away with,” he said.
Mr.Sinha further said many of these companies also spend a lot of money on publicity and advertisements, “whereas SEBI rules are that you can not spend more than 25 per cent on what is called General Corporate Purposes.
“We have put this ceiling on such expenses (by companies listed in the main market) because we realised that the people are not disclosing the real purpose of IPO and then they are diverting the money and misusing the funds collected from public investors. Here (for start-ups), we have removed that ceiling also.”
“So, these companies are very happy that for their sake a lot of changes and relaxations have been made by SEBI,” he added.
The regulator’s move for start-ups to get listed and raise funds through a dedicated platform on domestic stock exchanges has been welcomed by e-commerce firms and other new-age ventures.
The new norms are aimed at encouraging Indian entrepreneurs and their technology and other start-ups to remain within the country, rather than moving to overseas markets for funds.
Under the new norms, the exchanges would have a separate institutional trading platform for listing of start-ups, while the minimum amount that an individual or institutional investor would need to invest in such ventures would be Rs.10 lakh. However, small retail individual investors would not be allowed to invest.
A higher investment cap has been decided with a view to keeping the small investors away, as risks could be higher in such investments and the disclosure and other listing requirements have been relaxed, as compared to other companies.
For their listing, SEBI has also relaxed the mandatory lock-in period for promoters and other pre-listing investors to six months, as against three years for other companies.
Besides, the disclosure requirements for these companies have also been relaxed.
