Capital markets regulator SEBI on Tuesday issued new norms on listing and fund raising for start-ups, cleared a new set of norms for re-classification of promoters, made public offer investments cheque-free and also cut down the time taken for listing of companies by half to six days.
Talking to CNBC-TV18, experts Manan Lahoti of Luthra & Luthra, Deven Choksey of KR Choksey Shares and Sandeep Parekh of Finsec Law Advisors gave their views on the new SEBI norms.
Below is the verbatim transcript of Manan Lahoti, Deven Choksey and Sandeep Parekh's interview with CNBC-TV18's Menaka Doshi.
Q: The discussion paper that SEBI had put out and what it had announced today are very similar. I will run you through the highlights again. An institutional trading platform in which tech intensive companies can list provided 25 percent of their pre-issue capital is allocated to bona fide institutions. For non-tech intensive companies it would have to be a 50 percent Qualified Institutional Buyer (QIB) allocation pre issue. No bar on raising money for general corporate purposes, fewer pre Initial Public Offering (IPO) and post IPO disclosures for instance pre-IPO you don't have to disclose the valuation rationale, you don't have to disclose all litigations, only material ones and post IPO disclosures, SEBI chairman had suggested that of course things like clause 49 will not apply, there will be a lower compliance level so to speak. A minimum investment level of Rs 10 lakh and a post issue lock in of only six months. Does this sound like a promising start for start-ups?
Lahoti: As far as the two formulations what we saw in the discussions we saw what will be important to know is SEBI does expect that the promoters will not hold more than 25 percent in these companies because that is the start of the discussion and I don't think that will really help a large number of companies.
Q: Do you think this will help the government price issues more competitively? They have made the announcement that while they are not changing the T minus 2 timeline for OFS on stock exchange platform, the T minus 2 can now include a banking day as opposed to both having to be trading days?
Choksey: I feel that this is a minor change that they have done or a tweak that they have done in this entire subject. However, the larger issue is still not addressed fully. According to me, OFSs are nothing short of price destruction mechanism in the listed market and that is more disturbing because whenever the companies do come out with OFS at that point of time the listed stocks get a real beating, the result of which investors suffer. The entire subject of keeping this OFS window open only for two days itself requires to be changed or relooked at it. Generally when a company wants to sell a large chunk of its shares, a window should be kept open for a longer period of time and on the exchange platform itself as and when the buyer gets interested the company should supply those shares. That would probably ease out the pressure on pricing and at the same time would have a fair treatment for all investors, existing as well as new investors.
Q: But if you kept the OFS window open for longer now wouldn't that in a sense be disruptive to regular market trading in that stock and that regular market pricing of that stock as well?
Choksey: The fact is that you keep the base price certain. So, obviously this is not going to offset the market, the market price of the stock even if it takes a longer period of time because the base price is definitely decided. So, once the base price is decided and if you keep the window open for a longer period of time you in fact give sufficient amount of time for the investor who wants to buy this particular stock by managing funds from the corner because here it is only 48 hours window. Many a times some of the large investors struggle to manage the mandate from their investors to bring in money into this country and probably to invest into this kind of an issue in 48 hours. So, I would think that keeping it for longer period of time with the base price on, the manipulation chances will in fact come down.
Q: Do you believe that SEBI's announcement of this new start-up listing platform is the answer or the way to keep start-ups to stay back in India and not choose to list abroad?
Parekh: Before I start let me qualify by saying I am basing my opinion on not the agenda of SEBI but not even the press release issued by them but a summary based on pressers which was emailed to me a short while back. So, I am not sure if what I am saying is accurate.
Q: Go ahead, we will correct you if your supposition is wrong.
Parekh: It is a good step forward. It should be explicit to all companies to the extent being allowed to use 100 percent money for general corporate purposes, I believe should be allowed for all companies and not just the so called start-ups and earlier this new sector and now I believe it is being opened up to all sectors. So that is a big positive but I would have wanted this for all companies.
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