The Securities and Exchange Board of India (Sebi) has approved a raft of measures including more transparent and efficient delisting of shares, reporting of sustainability issues by companies and provisions to make it easier for startups to go public.
In its board meeting on March 25, the market regulator also mandated public disclosure of analyst calls, quick reporting of earnings, and expanded the requirement of setting up a Risk Management Committee to the top 1,000 listed companies by market capitalizatioin from the existing to 500 listed entities.
Under the new delisting norms, a promoter or acquirer will have to disclose the intention to delist by making an initial public announcement. A committee of Independent Directors will have to give “reasoned recommendations” on the proposal for delisting.
It has also introduced/revised timelines for various activities involved in delisting, and said a promoter/acquirer can specify an indicative delisting price, which should not be less than the floor price. The promoter will be bound to accept the price discovered through reverse book building if it is the equal to the floor price/indicative price. Promoters don't need to specify an indicative price under current regulations.
Anil Chaudhary, Partner Finsec Law told Moneycontrol “SEBI Board has taken another step towards rationalizing the delisting process by permitting promoters to provide an indicative price which can be higher than the floor price as fixed by regulations. An indicative price would provide investors with a signal of the price at which their bids may be accepted and would reduce chances of hold-out. Further, recommendation of independent directors would also help the decision-making process of investors in a delisting offer”
Innovators Growth Platform
Sebi has made amendments as per stakeholders recommendations for Innovators Growth Platform. It made amendments after analysing comments on the discussion paper it issued in November last year. It cut down time period for issuers to have 25 percent of pre-issue capital held by eligible investors from 2 years to 1years for eligibility requirements which was major demand from startups.
Other measured taken by regulator include renaming ‘Accredited Investor’ for the purpose of IGP is renamed as ‘Innovators Growth Platform Investors’. Currently, pre-issue shareholding of such investors for meeting eligibility norms, is considered for only 10%, which is now increased and shall be considered for the entire 25% required for meeting eligibility norms.
Current IGP provisions do not allow discretionary allotment by the issuer company. “It has been decided to allow Issuer Company to allocate up to 60% of the issue size on a discretionary basis, prior to issue opening, to eligible investors with a lock in of 30 days on such shares,” Sebi said.
Sebi board has made provision of startups similar to main board companies. “Issuer companies which have issued Superior Voting Rights (SR) equity shares to promoters / founders shall be allowed to do listing under IGP framework,” it said.
For IGP companies, Regulator has changed triggered point of open offer from 25 percent to 49 percent. However, irrespective of acquisition or holding of shares or voting rights in a target company, any change in control directly or indirectly over target company will trigger open offer.
Sebi has made special provision for delisting in IGP framework. As per press release “Delisting under IGP framework shall be considered successful if the post offer acquirer/promoter shareholding, taken together with the shares tendered and accepted, reaches 75% of the total issued shares of that class; and at least 50% shares of the public shareholders are tendered and accepted. However, reverse book building is not applicable”.
Regulator has made soft regulations for startups. Currently, for a company not satisfying the conditions of profitability, net assets, net worth, etc., migration from IGP to Main Board requires a company to have 75% of its capital held by QIBs as on date of application for migration. This requirement is now reduced to 50%.
Reclassification of Promoters
Sebi has changed conditions of reclassification of promoters, a long-pending demand of corporate houses. It has changed the requirement of seeking approval of shareholders in cases where the promoter seeking reclassification holds shareholding of less than 1%, subject to the promoter not being in control. Sebi the time gap between the date of board meeting and shareholders meeting for consideration of reclassification request, to a minimum of one month and a maximum of three months from the existing requirement of minimum period of three months and maximum six months.
Gaurav Mistry, Associate Partner, DSK Legal told Moneycontrol “The Board has, with a view to further rationalise the existing framework relating to reclassification of promoter/promoter group entities and to provide parity with the existing construct of the exemptions, approved the proposal to exempt the applicability of existing requirements for reclassification if such reclassification is pursuant to an order of a regulator under any law (in line with existing exemption available in case of a resolution plan approved under the Insolvency code). This is a welcome change which, to some extent, assuages the ambiguity that previously existed in relation to such orders which were not explicitly exempted.”
Mistry further added that “The Board has also relaxed the requirement of shareholders’ approval for reclassification of promoters/promoter group where such promoters hold less than 1% shareholding and are not in control of the listed company. This is a welcome change that intends to remove the procedural hassles and complexities around reclassification faced by persons who were erstwhile promoters.”
Business Responsibility and Sustainability Reporting by listed entities
The Board has decided to introduce new requirements for sustainability reporting by listed entities. This new report shall be called the Business Responsibility and Sustainability Report (BRSR) and shall replace the existing Business Responsibility Report (BRR).
The BRSR shall be applicable to the top 1000 listed entities (by market capitalization), for reporting on a voluntary basis for FY 2021 – 22 and on a mandatory basis from FY 2022 – 23.
It said the BRSR lays considerable emphasis on quantifiable metrics, which allows for easy measurement and comparability across companies, sectors and time periods. Further, the disclosures on climate and social (employees, consumers and communities) related issues of the entity have been significantly enhanced and made more granular.
Analyst Call Recording to be made public in 24 hours
The market regulator has addressed the asymmetry in information that arises after analyst meetings and conference calls conducted by listed companies.
Sebi board has decided that companies to make audio/video recordings of such meetings available on their website and on stock exchanges within 24 hours of the occurrence of the event. Companies have to provide written transcripts of such meetings within five working days.
Review of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) In case of board meetings held for more than one day, the financial results shall be disclosed by listed entities within 30 minutes of end of the board meeting for the day on which the financial results are considered.
Sebi said the requirement for formulation of dividend distribution policy by the existing top 500 listed entities has been extended to the top 1000 listed entities on the basis of market capitalisation.
Results, risk management
In case of board meetings held for more than one day, financial results shall be disclosed by listed entities within 30 minutes of end of the board meeting for the day on which the financial results are considered.
Sebi board has approved the proposals of constitution of risk management committee. This committee constitution requirement for top 1000 listed companies which is currently for 500 companies.
Sebi has made some amendments in alternative investment fund in line with government regulations for startups. Board has provided a definition of ‘startup’ as specified by Government of India for the purpose of investment by Angel Funds. remove the list of restricted activities or sectors from the definition of Venture Capital Undertaking to provide flexibility to Venture Capital Funds registered under Category I Alternative Investment Funds (AIFs) in making investments.