Sebi announces measures for PSU delisting, relaxes ESOP norms for startup founders

Mumbai: The Sebi board on Wednesday approved a slew of proposals on the ease of doing business for market participants and measures for voluntary delisting for select state-owned companies.

The board, which met at the capital markets regulator's headquarters here, also decided to allow startup founders to retain employee stock options (ESOPs) granted at least one year prior to the filing of preliminary IPO papers.

With foreign portfolio investors' interest in government securities growing amid India's inclusion in global bond indices, the Securities and Exchange Board of India (Sebi) decided to simplify regulatory compliance for govt bonds-focused FPIs.

The Sebi board also decided to come out with a settlement scheme for certain stock brokers who traded on the National Spot Exchange (NSEL) platform against whom enforcement actions have been started, which includes clarity on both monetary and non-monetary terms of settlement.

This was the second board meeting chaired by Tuhin Kanta Pandey since assuming charge as the head of the capital markets regulator earlier this year.

In comments that come amid the largest equity bourse NSE's initial public offering (IPO) plans, Pandey also said that the regulator does not have any problem with the current structure of a clearing corporation being a subsidiary of an exchange.

However, he said that the charges levied to an investor for executing trades cannot be a "black box" and made it clear that the Sebi favours unbundling on this front.

The issue of majority ownership in its clearing arm being a hindrance for the NSE IPO is a "speculation" and not a proposal or an ask from the regulator, Pandey said.

At its board meeting, the Sebi also decided to allow category I and II alternate investment funds to offer co-investment opportunities within the AIF structures and a proposal to make angel investors into "Accredited Investors", which will allow them greater flexibility, as the measures to protect smaller investors will not be applicable for them.

A majority of the 19 proposals cleared in the board meeting are related to ease of doing business for the market ecosystem, including in the social stock exchange front, for merchant bankers, and the real estate investment trusts and infrastructure investment trusts.

Pandey said entities have raised Rs 20 crore from 20 issuances till now, and the measures announced on Wednesday, including broadening the number of entities, which can do a not-for-profit organisation will help them raise more funds.

On the PSU delisting front, the measures adopted by the Sebi board include relaxations from the requirement of the two-third threshold for approving delisting by public shareholders and in the mode of computation of floor price.

Under current rules, delisting is successful if promoter shareholding reaches 90 per cent. Moreover, the floor price for delisting is calculated using several pricing metrics such as the 60-day average price and the highest price in the last 26 weeks.

Pandey said excluding banking, financial services and insurance sectors, there are five entities, where the state owns 90 per cent or more stake, which stand to benefit from the decisions of the board, and explained that challenges have been faced since the past because of financial performance of entities.

Sebi's announcement on the ESOP front is being considered as a major relief to startup founders looking to go public, as they will be able to retain employee stock options (ESOPs) granted at least one year prior to the filing of preliminary IPO papers.

Under the existing regulations, promoters are ineligible to hold or be granted share-based benefits, including ESOPs. If they hold such share-based benefits at the time of filing of draft red herring prospectus (DRHP), they have been required to liquidate such benefits prior to the IPO.

This provision has been found to be impacting founders classified as promoters at the time of filing of DRHP, Sebi noted.

Pandey said the board approved a proposal to "facilitate founders who received such benefits at least one year prior to the filing of DRHP with the board, to continue holding, and/or exercising such benefits even after being specified as the promoter/s and the company becoming a listed entity".

These proposals are expected to assist public companies who intend to list after undertaking reverse flipping -- shifting the country of incorporation from a foreign jurisdiction to India.

On the FPI's G-Sec ownership front, Pandey said Sebi has decided to simplify rules and ease regulatory compliance for Foreign Portfolio Investors (FPIs) that invest exclusively in Indian government securities (G-Secs) with the aim to attract more long-term bond investors to India.

Currently, foreign investors invest in Indian debt through three routes -- General, Voluntary Retention Route (VRR) and the Fully Accessible Route (FAR). VRR and FAR allow investments without many restrictions, such as security or concentration limits.

"With an objective to enhance ease of doing business through a risk-based approach and optimum regulation, the board approved the proposal to relax certain regulatory requirements for all existing and prospective FPIs that exclusively invest in G-Secs. These measures are expected to further help in facilitating investments by FPIs in G-Secs," Sebi said in a statement after the conclusion of the board meeting.

Under the approved relaxations for FPIs investing in G-Secs, the periodicity of mandatory KYC review for such FPIs will be harmonised with the RBI's requirements. Accordingly, such foreign investors will have less frequent mandatory KYC reviews.

It also approved a proposal for the use of liquid mutual funds and overnight funds for compliance with deposit requirement mandates for investment advisors and research analysts, in addition to bank fixed deposits for the purpose of compliance.