India is a growing service economy, home to thousands of start-ups, in need of funds for future growth. Initial Public Offerings (IPOs) are a way of channeling large public investments into a company, while providing an exit opportunity to investors including angel investors and venture capital funds (VCFs).
Among other differentiators from companies that access the IPO route, start-ups particularly in the technology space may be characterized by not having promoters in the conventional sense, but rather entrepreneurial founders and financial investors who are keen to take a successful business venture public, handing over the reins to professional managers, then moving on to the next opportunity.
However, early-stage companies face a number of challenges in accessing the capital market, including due to strict disclosure and post-listing compliance requirements.
The Securities and Exchange Board of India (SEBI) instituted the Institutional Trading Platform (ITP), pursuant to the SEBI board meeting dated June 25, 2013, to allow easier listing and trading of start-ups and Small and Medium Enterprises (SMEs). SEBI introduced this platform on October 8, 2013, inserting Chapter X-C through an amendment in the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (SEBI ICDR Regulations), relaxing many of the stringent rules governing main market listings.
Although retail investors are excluded from this forum, to safeguard smaller investors from the higher risk associated with equity investment in emerging companies, SEBI contemplated that companies listing on the ITP could migrate to the main board, subject to certain requirements, at which time retail investors could become shareholders in these companies.
Providing an alternative platform for emerging companies to list is a tested concept in the international securities market. The United States, United Kingdom, Hong Kong, Japan, Singapore and China have all provided alternative platforms for emerging companies, with less onerous disclosure and other requirements, compared to main market listings.
The National Stock Exchange of India Limited (NSE) and BSE Limited (BSE) have both set up ITP platforms. Approximately 20 companies have listed on BSE’s ITP platform, whereas around 70 have listed on NSE’s ITP platform, so far. Observing that the ITP had not received the expected response from investors and investee companies, SEBI replaced Chapter X-C of the SEBI ICDR Regulations by an amendment on August 15, 2015.
The amended regulations relaxed various eligibility criteria and disclosure requirements for listing on the ITP, and provided the option to list on the ITP with or without a public offer. Various enabling amendments to other SEBI regulations, including on takeovers, listing, delisting and Alternate Investment Funds (AIFs) were also notified.
However, since the further relaxation of the ITP framework was announced by SEBI in 2015, there have been no start-up listings, and none of the companies listed on the ITP have migrated to the main board.
Monal Mukherjee, Partner, Shardul Amarchand Mangaldas & Co, writes this piece for FICCI’s CAPAM 2017 Knowledge Paper. Post continues on Page 2.