Sebi makes IPOs cheque-free; unveils start-up listing norms

Ushering in a wave of technology- driven reforms, regulator Sebi on Tuesday allowed startups to list and raise funds with an easier set of norms within India, while it made investments cheque-free for all IPOs.

Besides, the regulator also fast-tracked the process of raising funds for companies through IPOs by reducing the listing time by half to six days after the public offer. The Securities and Exchange Board of India (Sebi) also allowed a larger number of companies to tap the 'fast-track' route for raising funds from the existing and new investors. While the move to create a separate institutional trading platform on stock exchanges for start-ups was cheered by e-commerce firms including Snapdeal and other interested players, the market experts also welcomed the reduction in listing time and expansion of ASBA facility for IPO investments that would do away with cheque payments.

ASBA (Application Supported by Blocked Amount) refers to an application mechanism for subscribing to IPO where the bid amount is blocked in a bank account and it would be now applicable to all kinds of investor category across all IPOs. The new start-up listing norms are aimed at encouraging Indian entrepreneurs and their technology and other ventures to remain within the country, rather than moving to overseas markets for funds, Sebi Chairman U K Sinha said.

Under the new norms approved by Sebi's board today, the minimum amount that an 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 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 relaxed the mandatory lock-in period for all pre-listing investors to six months, as against three years for other companies. Besides, disclosure requirements for these companies have also been relaxed, Sinha told reporters after the board meeting. The regulator said that the streamlining of public issue norms would "obviate the need to issue cheques", help more retail investors access IPOs and reduce the costs.
"With this issuers will have faster access to the capital raised and investors will have early liquidity," Sinha said.

Currently, it takes 12 days after the Initial Public Offer (IPO) for a company to list on the exchanges, thus keeping investors' funds locked in for a longer period. However, investors will have to wait for making the IPO process entirely online in terms of submission of their bids. While Sebi has provided for online submission of bids from terminals of market entities, the same facility from any computer or mobile will take some time. Sinha said the full-fledged e-IPO would be introduced in due course. On the merger of commodities regulator FMC with Sebi, Sinha said it would be completed by September-end.

To bolster corporate governance at listed companies, Sebi also cleared a new set of norms for re-classification of promoters, whereby an outgoing promoter would have to forego control and all special rights and dilute stake to 10 per cent to become a public investor. Partly heeding to the government's request on Offer For Sale route for PSU disinvestment, Sebi also allowed the companies to disclose such plans two banking days prior to the share sale -- a move that may lead to most such share sales taking place on Mondays.

To prevent misuse of funds raised from public, Sebi said companies will have to keep the money in scheduled commercial banks till the amount is utilised for specified purposes. Sinha also said that retail investors have begun coming in a big way and they can act as effective 'counter-balance' to foreign investors. He also said that Sebi is working on the new crowdfunding norms, which would provide another avenue to the new-age companies and entrepreneurs to raise funds and a decision in this regard can also be taken soon.

Welcoming the new norms, BSE Managing Director Ashish Chauhan said the new platform will ensure that the Indian start-ups prefer to list on domestic exchanges instead of going to foreign exchanges. Leading e-commerce firm Snapdeal said it is a welcome move and provides the "much-needed access to funds".

NSE's Chief Regulatory Officer V Narasimhan said: "The reduction in IPO time is a very good example of positive exploitation of banking and trading technology for common good. Primarily market investors will definitely welcome this move."