With market regulator Securities and Exchange Board of India (SEBI) assigning the promoter tag to SoftBank for Snapdeal-backed SaaS company Unicommerce eSolutions, the Japanese investor has entered into an indemnity contract with Snapdeal's founders—Kunal Bahl and Rohit Bansal—to protect itself and its executives from any future liabilities arising out of the responsibilities of being deemed a promoter of Unicommerce.
As per filings with SEBI, at the time of filing of its draft initial public offering (IPO) papers in January, Unicommerce had only identified AceVector Limited (formerly known as Snapdeal Limited) as its promoter.
In an addendum filed with the regulator earlier this month, Unicommerce said that its board of directors on May 29 decided to also identify Starfish I Pte. Ltd (a SoftBank entity), Kunal Bahl and Rohit Kumar Bansal as promoters of the company.
Before the board's decision, SoftBank had on May 17 entered into an indemnity agreement with the Snapdeal co-founders to protect itself from any liabilities arising from being classified as a promoter of Unicommerce.
“The Indemnity Agreement was executed for the purposes of indemnifying Starfish (Softbank entity) against any Claim or Loss, in its capacity as one of the Corporate Promoters of our Company (Unicommerce), by the Individual Promoters (Kunal Bahl and Rohit Bansal) and AceVector,” read the filings made with SEBI.
“In the event a Loss has arisen out of or on account of a Claim against Starfish, its affiliates, its directors, agents, officers, representatives and employees ('Starfish Indemnified Persons'), on account of Starfish being classified and named as a Promoter, the Responsible Promoters will be required to indemnify, defend and hold harmless Starfish Indemnified Persons,” it added.
A spokesperson for Unicormmerce said that AceVector Limited and its founders Bahl and Bansal have been the operators of Unicommerce whereas SoftBank has been a financial investor. Pursuant to all entities being classified as promoters of Unicommerce, the operating entities have agreed to indemnify the financial investor, the spokesperson said, adding that the same has been recorded in the company's filings with SEBI as well.
“SoftBank is a financial investor in the company and is not involved in the day-to-day running of the business. However, given their substantial holding in the company, in consultations with SEBI, it was decided that they should be categorised as a promoter. While on paper they have been called a promoter now, they continue to remain just a financial investor and thus they have entered into this indemnity agreement to protect their interests as a purely financial investor in the company. They have done a similar arrangement in one more tech company,” a person familiar with the matter told Moneycontrol.
Unicommerce is a software-as-a-service platform that enables end-to-end management of e-commerce operations for brands, sellers and logistics service provider firms.
Also Read: Snapdeal-owned Unicommerce files DRHP to sell 30 million shares, no fresh issue
Promoter classification
Industry experts pointed out that over the course of the last several months, SEBI has increased its scrutiny on promoters and promoter groups of IPO-bound companies, resulting in several instances where it has asked companies to reclassify members of promoter group as promoters or asked investors holding concentrated bets to classify themselves as promoters.
The ‘promoter’ tag carries more responsibilities and liabilities than that of ‘promoter group’.
Also Read: Executive startup founders holding more than 10% stake may be categorised as promoters
Experts added that SEBI is not just looking into individuals but also corporate entities that have been set up to be promoters of a company and has asked individuals/shareholders holding significant stakes of these corporate entities to be separately classified as promoters too.
For instance, in the cases of travel tech company TBO Tek Limited and Emcure Pharma, the companies reclassified some 'promoter group' individuals as 'promoters' of their company after consultations with SEBI.
This is also the case in Unicommerce eSolutions, where promoter corporate entity AceVector’s shareholder Starfish (the SoftBank entity) has now been classified as a promoter of Unicommerce, even though Starfish does not directly hold any shares in Unicommerce.
Starfish is the largest shareholder of AceVector with a 35.4 percent stake. SoftBank, through SB Investment Holdings (UK) Limited, holds a 29.23 percent stake in Unicommerce. The Japanese investor plans to sell half of its stake in the proposed IPO, which will reduce its direct stake in Unicommerce to approximately 14.61 percent.
Experts added that given SEBI’s increased scrutiny, individuals and investors who would not want to be categorised as promoters stand the risk of becoming one. More investors could thus follow SoftBank's cue and enter into similar indemnity agreements with founders/promoters.
“Foreign shareholders holding significant minority stakes in companies are not comfortable to be called promoters or promoter group. But in some instances, depending on the quantum of their stake and the influence they wield on the running of the company, SEBI is likely to classify them as promoters, which will open them up to several responsibilities such as multiple disclosures, as well as related liabilities. In such cases, investors may opt for such indemnity agreements to protect their interests,” said a capital markets lawyer who did not wish to be named.
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