Market regulator SEBI, vide notification dated 8th October 2013 issued the SEBI (Listing of specified securities on Institutional Trading Platform) Regulations, 2013. SEBI has initiated a new trading platform for the SMEs and has issued a notification on the modalities involved therein. These Regulations have been issued with the intention to give a boost to the SME sector. Accordingly, amendments have been made in SEBI (ICDR) Regulations, SEBI (SAST) Regulations and SEBI Delisting Regulations.
Through these Regulations SEBI has now allowed listing of small and medium enterprises (SMEs) on the stock exchanges without making any initial public offer (IPO).
CHAPTER XC – LISTING AND ISSUE OF CAPITAL BY SMALL AND MEDIUM ENTERPRISES ON INSTITUTIONAL TRADING PLATFORM WITHOUT INITIAL PUBLIC OFFERING – ADDED IN SEBI ICDR REGULATIONS 2009
These Regulations are applicable to such small and medium enterprises which do not have their securities listed on any recognized stock exchange and who want to get their specified securities listed exclusively on the Institutional Trading Platform.
Only those small and medium enterprises shall be eligible for listing of its securities on the Institutional Trading Platform, which satisfies the following conditions:
- Company/ its promoters/ any group company/ director should not appear in the willful defaulter’s list of Reserve Bank of India (RBI) maintained by Credit Information Bureau (India) Limited (CIBIL).
- No winding up petition has been admitted against the company by a competent court.
- The company, its group companies or subsidiaries should not have been referred to BIFR during preceding 5 yrs prior to the date of application for listing;
- No regulatory action has been taken against the company, its promoter or director, by SEBI, RBI, IRDA or MCA within a period of 5 years prior to the date of application for listing;
- The company has not completed a period of > 10 years after incorporation and its revenues have not exceeded Rs. 100 crore in any of the previous financial years;
- Paid up capital has not exceeded Rs. 25 Crores in any of the previous financial years;
- The company has at least one full year’s audited financial statements at the time of making an application for listing.
- In addition to the above conditions the enterprise must satisfy any one of the following conditions:
- At least 1 alternative investment fund/ venture capital fund/ angel investors/ another category of investors/ lenders approved by SEBI should have invested a minimum of Rs. 50 lacs in equity shares of the company, or
- The company has received finance from a scheduled bank for its project financing/ working capital requirements and a period of 3 yrs has elapsed from such financing and the fund have been fully utilized, or
- A Registered merchant banker has exercised due diligence and has invested not less than Rs 50 lacs in equity shares of the company which shall be locked in for a period of 3 years from the date of listing, or
- A qualified institutional buyer (QIB) has invested not less than Rs. 50 lacs, which shall be locked in for a period of 3 years from the date of listing, or
- A specialized international multilateral agency or domestic agency or a Public Financial institution has invested in the equity capital of the company.
LISTING OF THE SECURITIES:
- Companies that fulfill the eligibility criteria above can apply to any recognized stock exchange for listing of its specified securities on the institutional trading platform. An Information Document will have to be attached along with the application.
- The Information Document shall be made public by hosting in on the website of the recognized stock exchange for a minimum of 21 days from the date of filing.
- The recognized stock exchange may grant in-principal approval to the company.
CONDITIONS ON ISSUE OF SECURITIES AND RAISING OF CAPITAL:
- The listing of such securities should neither be accompanied by any issuance of securities to the public nor should the company come out with a public offer, while listed on the platform.
- To augment its fund requirements, the company may raise capital through private placement or rights issue without an option for renunciation of rights but subject to the following conditions:
For Private Placement:
- the company shall obtain in-principle approval from the recognized stock exchange prior to private placement;
- the approval of shareholders through a special resolution under sub-section (1A) of section 81 of Companies Act, 1956 shall be obtained;
- the company shall complete allotment of securities within 2 months of obtaining such approval;
For Rights Issue:
- a) there shall not be an option for renunciation of rights;
- b) the company shall obtain in-principle approval from the recognized stock exchange where its securities are listed prior to a rights issue;
- c) the company making a rights issue shall send a letter of offer to its shareholders through registered post or speed post or electronic mode and the same shall be made available on the website of the company and the recognized stock exchange.
MINIMUM PROMOTER SHAREHOLDING AND LOCK-IN:
At least 20% post listing capital shall be held by the Promoters with a lock-in period of 3 years from the date of the listing.
TRADING OF SPECIFIED SECURITIES:
All specified securities of the company shall be in dematerialised form and the minimum trading lot on institutional trading platform shall be Rs. 10 Lacs.
EXIT FROM THE INSTITUTIONAL TRADING PLATFORM:
SEBI has prescribed a simplified mode of delisting. A company may delist by passing a special resolution through postal ballot, wherein 90% of total votes and majority of non-promoter votes have been cast in favor of the proposal and by obtaining exit approval from the concerned stock exchange
EVENT BASED DELISTING GROUNDS:
A company shall mandatorily exit the platform in the following events:
Ø Period of 10 years has expired from listing.
Ø Company has paid up capital of more than Rs. 25 Crores
Ø The company has revenue of more than Rs. 300 crore as per the last audited financial statement and a market capitalization of more than Rs. 500 crore
The stock exchange may grant 18 months upon happening of any of the above events for the Company to delist.
COMPULSORY DELISTING GROUNDS:
If a Company has failed to file its periodic filings with the exchange/ failed to comply with corporate governance norms/ other listing conditions for more than 1 year, the Company shall be delisted from the Platform.
In the case of a compulsory delisting, no company promoted by its Promoters and Directors (except its Independent Directors) shall be permitted to be listed on the Platform for a period of 5 years from the date of such delisting.
In addition to the above amendments in ICDR Regulations, corresponding amendments have also been made in SEBI Takeover Code and Delisting Regulations, mandating that the respective Regulations shall not be applicable in the case of companies listed on the platform.
Lack of exit opportunities for existing investors and restricted access to new investors is a major problem faced by start-ups and SMEs. These regulations will help in easing of such exit and entry problems faced by the investors. This move will bring relief to private equity (PE) and venture capital (VC) funds that typically fund such firms and have been looking for easier exit options.
The listing will afford companies better valuations and also help make it easier for investors to sell their stake. The listing on ITP by start-ups and SMEs is also expected to offer their existing investors better chances to find alternate buyers than if they search using their own network in the investment community.
The regulations bar listing by companies whose names appear in the willful defaulter’s list of the Reserve Bank of India. SEBI is also looking to keep out companies whose promoter, Group Company or directors appear in the list which is a good initiative and will help in maintaining good corporate governance.