The Securities and Exchange Board of India (SEBI) may approve a number of new norms at its upcoming board meeting on December 18, including norms for SMEs looking to go public, angel funds and unpublished price sensitive information (UPSI).
SEBI may double or quadruple the minimum application size in SME IPOs to ₹2-4 lakh, allowing only informed investors with a higher risk appetite to apply.
Issuers are eligible for an IPO only if the size of the issue is more than ₹10 crore and only if the operating profit is ₹3 crore for at least two of the three financial years preceding the filing.
The lock-in on the minimum promoter contribution can be increased from three years to five years. The minimum allotments in such IPOs may be increased from the existing 50 to 200. Appointment of a monitoring agency will be mandatory if the size of the new issue exceeds ₹20 crore.
SEBI recently canceled the SME IPO of Trafiksol ITS Technologies and asked the company to return the money to investors over alleged questionable transactions with a ‘shell entity’.
UPSI extension
SEBI can expand the scope of UPSI by including restructuring plans, proposed fundraising activities and one-time bank settlements. Developments in corporate insolvency proceedings, including the approval of resolution plans and one-off settlements relating to loans and borrowings from banks or financial institutions, will be included.
According to a study by SEBI on material events disclosed to the stock exchanges, it was seen that companies were only categorizing the items explicitly mentioned in the PIT Regulations as UPSI, and not complying with the law in spirit.
The regulator could propose a sharp increase in net worth and provide greater clarity on the roles and responsibilities of investment bankers. Bankers with a net worth of at least ₹50 crore fall under category 1 and are allowed to undertake any activities that fall under the ambit of SEBI. Those with a net worth of Rs 10 crore fall under category 2 and are not allowed to fix motherboard issues.
Angel funds
SEBI may approve a proposal that would allow only accredited investors to invest in angel funds. Such investors must meet net worth criteria verified by a third-party accreditation agency. This will allay concerns about investors not having the necessary risk appetite and investing in startups through angel funds.
Angel Funds will conduct their first close, by onboarding a minimum of five accredited investors, within 12 months from the date of SEBI communication for recording their private placement memorandum. Existing angel funds will be given one year to meet the accredited investor requirement.
The minimum investment by an angel fund in a start-up may be reduced from ₹25 lakh to ₹10 lakh and the maximum investment limit will be increased from ₹10 crore to ₹25 crore. The 25 percent diversification limit for angel funds will be abolished.
SEBI may amend the rules regarding the appointment of public interest directors to the boards of market infrastructure institutions such as stock exchanges and clearing houses.
Pointers
SEBI may double or quadruple minimum filing size in SME IPOs to ₹2-4 lakh
May expand the scope of UPSI to include restructuring plans, proposed fundraising activities and one-time bank settlements
Allow only accredited investors to invest in angel funds
Adjust the rules for the appointment of public interest directors to the boards of market infrastructure institutions
