An IPO for Indian startups is believed to be a long and complicated journey by many successful entrepreneurs in India. But equations are changing fast!
India wants its homegrown startups to go public with ease and list on the Innovators’ Growth Platform (IGP), which will help early-stage investors in new companies to have a structured exit route.
A top official in the know has revealed that the Securities and Exchange Board of India (SEBI), in a bid to reduce the timeline required for firms to go public and improve the disclosure standards, on Thursday, might make amendments to Listing Obligations and Disclosure Requirements, aka LODR. It will also provide listed entities with a much-needed reduction in compliance requirements.
The move could have a direct impact on the number of IPO Indian startups could attempt for in the next few years.
SEBI has proposed that the pre-listing compulsory shareholding period for investors who own 25% or higher in Indian startups be slashed in half to one year. It has also recommended that the open offer trigger for investment deals would be raised. A higher percentage of shares to be allocated to anchor investors and special rights be given to promoters and the existing institutional investors. But that’s not all.
The Indian market regulator has also proposed allowing issuer firms to seek a listing on the Innovators’ Growth Platform to issue DVR aka differential voting rights or superior voting rights (SR) to the promoters. Earlier, in December 2020, SEBI had mentioned that special rights such allocated to existing institutional investors (who hold more than 10% of the company’s capital) such as board seats and affirmative voting rights should be continued.
According to Sudhir Bassi, Executive Director of Khaitan & Co., these moves which SEBI is currently deliberating on are extremely progressive. DVR will let a startup founder have a significant amount of influence even after he or she has diluted their shareholding over a period of time.
Bassi further said that many Indian companies, after getting listed, still remain in the growth phase. Thus, as a result, institutional investors would very much want to have veto rights. And, it is this very element that will distinguish the IGP from the main board listing and make the platform way more acceptable to institutional investors.
Previously, in a discussion paper, SEBI had also proposed that companies should be allowed to allocate up to 60% of the issue size to anchor investors on a discretionary basis before the subscriptions on an issuance begin. The market regulator also sought to increase the limit for triggering open offers from 25% to 49%.
Experts believe that if SEBI successfully rolls out the planned changes related to IPO for startups, the growth of indian startups ecosystem could increase by multiple folds.
Currently, the takeover rules mandate that an investor who buys a 25% or higher stake into a listed company must make an open offer to public shareholders to buy a minimum of an additional 26%.
SEBI might also let promoters provide an indicative price. It believes it will help investors gauge the promoter’s intent and inclination to pay the required price.
It now remains to be seen how many of these proposals get formalised in the upcoming announcements. Will the route to IPO for Indian startups becomes much easier? We will keep you updated. Until then, stay tuned.