The Securities and Exchange Board of India (SEBI) has announced key changes in the rules for listing of startups while bringing in more transparency in the disclosure requirements for listed entities with a focus on the all-important ESG—environment, social and governance—parameters. It has also enhanced the delisting process and given retail investors more power in terms of access to information. Here’s a quick explainer on some of the important decisions by the market regulator.
Retail investors to get access to institutional investors’ meets
Promoters and key management personnel of listed companies regularly meet analysts and institutional investors to share business details with an aim to get a positive report or investment. Currently, the norms make it mandatory for the company to disclose the schedule of such meets and also the presentations made during such meetings.
The regulator has moved one step ahead and made it mandatory for the companies to provide the audio and video recordings of all such meetings on its website within 24 hours or before the next trading day, whichever is earlier. Further, written transcripts of the meetings will also be made available within five working days.
This is an important move especially for retail investors as companies are known to share important developments and outlook with the deep-pocketed institutional investors and also the analyst community while the other categories of shareholders, including retail investors, do not get full and timely access to such information.
Encouraging startups to list on Indian exchanges
India has a vibrant startup sector with recent reports suggesting that the fintech segment alone is valued at over $50 billion and boasting a potential to reach $160 billion in the next five years. While the startup segment is growing exponentially, hardly any venture looked at listing on the Indian exchanges as the Indian regulatory framework was touted as cumbersome and unfriendly towards the companies. Based on market feedback, Sebi has relaxed many requirements that are expected to encourage Indian startups to list locally and not look at the overseas exchanges.
To start with, Sebi has reduced the holding period for pre-issue capital from the existing two years to one year while allowing such companies to make a discretionary allotment to eligible investors—a facility available to companies that list on BSE and NSE. Typically, startups offer their investors—private equity, venture capitalists, angel investors etc—a board seat or certain special rights like veto power or affirmative voting rights as part of the funding arrangement and Sebi has allowed such rights to be continued for such investors if they hold over 10 percent stake.
These decisions assume significance as they have been taken after wide consultation with industry players and are expected to encourage start-ups to list on Indian exchanges. Incidentally, Sebi released a discussion paper in December 2020 highlighting the major concerns of the industry while proposing changes based on feedback received from the start-up community. The latest set of amendments are largely based on those recommendations.
Enhanced focus on ESG parameters
The first half of 2020 saw global markets in turmoil and fund flows dry as pandemic fears engulfed the investor community. Still, Europe saw a record flow of $65 billion in ESG funds between April and June while the US had inflows totalling nearly $21 billion in the first six months. That explains the growing importance of ESG parameters that take into account factors like corporate governance, sustainability, social obligations and responsibility towards the planet among other things.
Sebi has introduced a concept called ‘Business Responsibility and Sustainability Report’ for the top 1,000 listed companies of the country. Among other things, the report will emphasise on disclosures related to climate and social related issues of the company, which would help the investor community assess the firm’s sustainability-related risks and opportunities.
This is an important move considering the fact that the recent past has seen quite a few Indian mutual fund house launch ESG funds even as such form of sustainable investing has grown exponentially across some of the largest markets. In the capital market regulator’s own words, the new set of requirements will “set the stage for taking a leap for better disclosures in the ESG space in India.”
Delisting requirements tweaked
While the regulator has been tweaking delisting regulations at regular intervals over the last many years, many in the market found the norms lacking in certain areas. Based on market feedback, Sebi has again amended the regulations with an aim to enhance transparency and efficiency.
To start with, the regulator has said that independent directors will have to give their “reasoned recommendations” on the delisting proposal while the promoter or acquirer entity will have to disclose its intention to delist the company through an initial public announcement.
Further, apart from the floor price—the minimum price at which the shares will be acquired—the acquirer can now specify an indicative price as well though the latter cannot be lower than the floor price.
Also, the acquirer will now be bound to accept the discovered price if it is equal to the floor price or the indicative price. The regulator has also brought in timelines for completing the various activities involved in the delisting process.