India is set to reduce the rules for promoting publicity and to list the Innovators’ Growth Platform (IGP), which provides a systematic way for early investors to emerge from new businesses. It’s a major market regulator and it may also change the delisting rules for existing companies to strengthen corporate governance. At its board meeting on Thursday, the Securities and Exchange Board of India (SEBI) could acknowledge a major role for independent directors in removing companies, seeking to reduce the timeline and improve disclosure rates. LODR to strengthen corporate governance and ease the burden of compliance with the listed structures.
The regulator has suggested that the mandatory period for shares before being listed for investors with 25 percent or more in start-ups should be reduced by one year. It also recommended an increase in open funding for investment deals and recommended the allocation of a higher percentage of shares to anchor investors during public issues and special rights to existing promoters and institutional investors. The regulator has suggested allowing fundraising companies seeking a list from the IGP to issue differential voting rights (DVR), or higher voting rights, to promoters. Previously it was said to be special rights such as board chairs and voting rights to existing investors who own more than 10 percent of their revenue should continue.
“Proposal to approve shareholders’ rights after listing and to allow DVR shares to promoters or developers is the most advanced step considered by SEBI. The DVR will allow the founder to make a significant impact even if the company clears the stock for some time, ” said Sudhir Bassi, executive director, Khaitan & Co. “Many of these companies will still be in the growth phase which is why institutional investors would like to have voting rights after being listed. This will separate the platform from the list of major boards and will make the product more acceptable to institutional investors, ” said Bassi.
SEBI in a paper also recommended allowing companies to voluntarily allocate 60 percent of their issue size to hold investors accountable before the subscription begins. It also sought to increase the threshold for causing the open offer to 49 percent from 25 percent. Currently, withdrawal rules authorize an investor who buys 25 cents or higher shares in a listed company and makes an open offer to public shareholders to buy at least another 26 percent. SEBI can allow promoters to offer a discounted price. The regulator believes that a competitive price can help existing investors measure the inclination of promoters and their willingness to pay such a price.
“The need for promoters to provide a price that reflects this will legitimize the market trend followed by many evolving targets. It is an effective way to convey the motivation of promoters to all public shareholders instead of leaving them to speculate a second time,” said Mehul Savla, partner, Ripple Wave Equity Advisors. “The retrospective mechanisms available to shareholders and the counter-offer option available to promoters balance this process of public negotiation transparently, added Savla. The administrator can also ask independent directors to provide feedback on the delisting process. Companies will also have to disclose their voting methods in the delisting decision.
