LISTING OF NEW AGE START-UPS THROUGH INNOVATORS GROWTH PLATFORM FRAMEWORK

Security and Exchange Board of India (“SEBI”) vide notification dated April 22, 2021¹ issued framework of Innovators Growth Platform² (“IGP”) under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”) thereby amending through May 5, 2021 notifications, the regulations pertaining to IGP under ICDR Regulations, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeovers Regulations”), SEBI (Delisting of Equity Shares) Regulations, 2009 (“Delisting Regulations”) and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”), inter alia, to facilitate, encourage and provide a trading platform for listing and trading of specified securities of startups.

These framework of IGP has replaced the erstwhile Institutional Trading Platform (“ITP”), which was introduced by SEBI in 2015 and was further renamed as IGP in the year 2019. However, the existing IGP framework also failed to provide a conducive platform to the facilitate the listing of new age start up.

SEBI has now introduced certain amendments to the IGP framework, with a view to facilitate listing of new age start-ups. The chapter X of ICDR Regulations (Innovators Growth Platform),provides guidelines for IGP issuers including eligibility conditions, listing of securities, lock in requirements, minimum trading lot etc. and conditions for migration to main board³, etc.

1. Following are the notable changes made to ICDR Regulations, for the purpose of facilitating listing of new age start-up:
   1. Eligibility requirements
      Previous Position:

      Regulation 283(1) of the ICDR Regulations provided that 25% of pre-issue capital of issuer company was required to be held for at least a period of 2 years as on date of filing of draft offer /information document, by eligible investors as identified under regulation 283(1).

      Present Position:

      Basis SEBI (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2021, dated May 5, 2021 (“Amended ICDR Regulations”), requirement of holding 25% of pre-issue capital of the issuer company has now been changed from 2 years to 1 year, under regulation 283(1).

   2. Accredited Investors
      Previous Position:

      Explanation to regulation 283(1) of the ICDR Regulations provided that the shareholding of Accredited Investors (“AIs”) was considered for only upto 10% of pre-issue capital out of eligibility requirement of minimum 25%, required to be held by eligible investors. Furthermore, the erstwhile definition of AI includes individuals and body corporate, and family trust smaller than INR 500 Crores were another group of eligible investors as AIs under the ICDR Regulations.

      Present Position:

      AIs’ pre-issue shareholding is now considered for entire 25% of the pre-issue capital required for meeting eligibility condition norms. However, pre-issue capital held by promoters/promoter groups, even if they are registered as AIs, shall not be considered for the 25% pre-issue capital eligibility requirement prescribed under regulation 283(1) of the Amended ICDR Regulation.

      Furthermore, the net worth of the family trust has now been reduced to INR 25 Crores and the definition of family trust itself is subsumed into the definition of AIs and it no longer remains as a separate category under Amended ICDR Regulations. Also, the term ‘AI’ is substituted with ‘IGP Investor’.

   3. Lock-In Criteria
      

      Regulation 288 of the ICDR Regulation deals with general conditions in respect of lock-in requirement wherein entire pre-issue capital of the shareholders shall be locked-in for a period of six months from the date of allotment in case of listing pursuant to a public issue or date of listing in case of listing without a public issue.

      Previous Position:

      Erstwhile, regulation 288(1)(c) of the ICDR Regulations provided that the equity shares held by a venture capital fund or alternative investment fund of Category I or a foreign venture capital investor were exempted from 6 months lock-in requirements prescribed under regulation 288(1), provided that such equity shares were locked-in for a period of at least one year from the date of purchase by the venture capital fund or alternative investment fund or foreign venture capital investor as the case may be.

      Present Position:

      The current dispensation/exemption is now extended to alternative investment fund category II also. Furthermore, as per SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2021, dated May 5th, 2021, category I and II of alternative investment funds shall invest not more than 25 per cent of the investable funds in an investee company directly or through investment in the units of other alternative investment funds.

   4. Discretionary Allotment – Anchor Investors
      

      Anchor investors are institutional investors that subscribe for shares ahead of the IPO and thus also provide confidence to potential IPO investors.

      ICDR Regulations has defined ‘anchor investor’ as a Qualified Institutional Buyer (“QIBs”)⁴ who makes an application for a value of at least INR 10 Crores in a public issue on the main board made through the book building⁵ process in accordance with these regulations or makes an application for a value of at least INR 2 Crores for an issue made in accordance with Chapter IX of these regulations.

      Previous Position:

      Regulation 287(2) of the ICDR Regulations provided that the allotment to institutional investors as well as non-institutional investors shall be on a proportionate basis. There was no provision for a separate allocation for anchor investors on discretionary basis under ICDR Regulations.

      Present Position:

      As per Amended ICDR Regulations, issuer company is allowed to allocate upto 60% of the issue size on a discretionary basis, prior to issue opening, to eligible investors as identified under regulation 283(1) of Amended ICDR Regulation, with a lock in of 30 days on such shares. Provided that the price of the specified securities offered to eligible investors shall not be lower than the price offered to other applicants. Also, minimum application size for pre-issue discretionary allotment is now kept as INR 50 Lakhs.

   5. Migration to the Main Board
      Previous Position:

      Regulation 292(1) of the ICDR Regulations provided that a company listed on IGP shall be eligible to trade on the main board of the stock exchange provided it fulfills conditions of the stock exchange and conditions mentioned under regulation 292(1) and regulation 292(2) of the ICDR Regulations i.e. conditions in relation to, listing on IGP for minimum period of 1 year, minimum 200 shareholders, profits of at least INR 15 Crores, net tangible asset of at least INR 3 Crores & net worth of at least INR 1 Crore, during the last 3 years etc.

      Furthermore, regulation 292(3) provided that, in case the IGP company did not satisfy the requirements mentioned under regulation 292(1) and regulation 292(2), such IGP company could migrate to the main board provided 75 percent of its capital as on the date of application of migration to the main board was held by QIBs.

      Present Position:

      Under the Amended ICDR Regulations, under regulation 292(3), the threshold has been reduced to 50% in respect of capital held by QIBs.

   6. Superior Voting Rights Equity Shares
      

      Superior voting rights equity shares, as per the ICDR Regulations means the equity shares of an issuer having superior voting rights compared to all other equity shares issued by that issuer.

      Previous Position:

      Erstwhile IGP framework did not allow for issuer companies to do an initial public offer of only ordinary shares for listing on the IGP, if an issuer had issued superior voting rights equity shares to its promoters/ founders. The same is however, not the case with listing on the main board.

      Present Position:

      Under the Amended ICDR Regulations, under regulation 288(5), the issuer companies who have issued superior voting rights equity shares, to its promoter can now issue ordinary shares for listing on the IGP, subject to compliance of provisions under the Amended ICDR Regulations:

      1. It has listed its specified securities for a minimum period of one year on the Innovators Growth Platform of a recognised stock exchange;
      2. It has minimum of two hundred shareholders, at the time of making the application for trading under the regular category;
      3. The company, any of its promoters, promoter group or directors are not debarred from accessing the capital market by the Board;
      4. None of the promoters or directors of the company is a promoter or director of any other company which is debarred from accessing the capital market by the Board;
      5. The company or any of its promoters or directors is not a wilful defaulter; and
      6. None of the promoters or directors of the Company is a fugitive economic offender.

      Provided that restrictions under (c) and (d) above shall not apply to persons or entities mentioned therein, who were debarred in the past by the board and the period of debarment is over as on the date of application for migration of trading to the regular category of the main board of the stock exchange.

2. Following are the other changes made to Takeovers Regulations and Delisting Regulations, for the purpose of facilitating listing of new age start-up:
   1. Takeovers Requirement
      

      As per Takeovers Regulations, an open offer is an offer made by the acquirer to the shareholders of the target company inviting them to tender their shares in the target company at a particular price. The primary purpose of an open offer is to provide an exit option to the shareholders of the target company on account of the change in control or substantial acquisition of shares, occurring in the target company.

      Previous Position:

      Regulation 3(1) of Takeovers Regulations provided that the acquirer had to make public announcement of an open offer for acquiring shares of target company on breaching 25% threshold. Furthermore, as per regulation 29(1) and 29(2) of Takeovers Regulations, any acquirer along with PACs needs to disclose their aggregate shareholding, whenever their shareholding reaches 5% and whenever there is subsequent change of ± 2% in their shareholding respectively.

      Present Position:

      As per the amended Takeovers Regulations dated May 5, 2021, the stipulation for triggering open offer under Takeovers Regulations is now relaxed from existing 25% to 49%. However, irrespective of acquisition or holding of shares or voting rights in a target company, any change in control directly or indirectly over target company will trigger open offer. Furthermore, the threshold for disclosure of the aggregate shareholding is now increased from 5% to 10% and whenever there is subsequent change of ± 5% (instead of present ± 2%) in the shareholding.

   2. Delisting
      Previous Position:
      1. Conditionalities - As per regulation 8(1) of Delisting Regulations, any company desirous of delisting its equity shares shall obtain the prior approval of the board of directors of the company and prior approval of shareholders of the company by special resolution passed through postal ballot. Provided that the special resolution shall be acted upon only if the votes cast by public shareholders in favour of the proposal amount to at least two times the number of votes cast by public shareholders against it.
      2. Offer Price – As per regulation 15(1) and 15(2) on “Offer Price” of Delisting Regulations, the offer price shall be determined through book building⁶ in the manner specified in Schedule II, after fixation of floor price⁷ under sub-regulation (2) and disclosure of the same in the public announcement and the letter of offer. Furthermore, the floor price shall be determined in terms of regulation 8 of Takeovers Regulations, as may be applicable.
      3. Minimum Equity Shares – As per regulation 17(1) of Delisting Regulations, the offer shall be deemed successful only if,- (a) the post offer promoter shareholding (along with the persons acting in concert with the promoter) taken together with the shares accepted through eligible bids at the final price determined as per Schedule II, reaches 90 per cent of the total issued shares of that class excluding the shares which are held by a custodian and against which depository receipts have been issued overseas.
      Present Position:
      1. An issuer company whose specified securities are traded on the IGP pursuant to an initial public offer can exit from that platform, if such an exit is approved by the board of directors of the company and such an exit is approved by the shareholders of the company by special resolution passed through postal ballot or e-voting, provided that the special resolution shall be acted upon only if the votes cast by majority of public shareholders are in favor of such exit proposal.
      2. Delisting price is based on a floor price determined in terms of regulation 8 of Takeovers Regulations, as may be applicable and an additional delisting premium justified by the acquirer / promoter.
      3. The post offer acquirer / promoter shareholding (along with the persons acting in concert with the acquirer / promoter), taken together with the shares tendered and accepted, reaches 75 per cent of the total issued shares of that class; and at least 50 percent shares of the public shareholders as on date of the board meeting referred to in (i) above are tendered and accepted,
         Provided the recognised stock exchange where its shares are listed approves of such an exit.

Thus, overall the changes brought to different regulations to accommodate the new IGP framework is more of a granular step towards strengthening and at same time, easing the listing up procedure of the new age start-up on the trading platform. The IGP framework will surely act as an important cornerstone in the emerging Indian securities market and in driving the economy forward.