Indian regulator issues guidelines for SMEs to list without IPO

The Institutional Trading platform (ITP) on which these businesses can list was introduced in June. Only "informed investors," such as angel investors and PE and VC firms will have access to the ITP and the minimum amount for trading will be INR1 million ($16,300).

According to the SEBI circular, eligible companies must be younger than 10 years with revenues of not more than INR1 billion in any year and paid-up capital below INR250 million. In addition, they must have already received a certain amount of funding - this could be INR5 million from VCs or other Alternative Investment Funds (AIFs), angel investor funds, qualified institutional buyers or registered merchant bankers.

Investments made by individual angel investors will not be accepted under this criterion, but financing from a bank, international multilateral agency or developmental institution will qualify companies for listing.

An ITP listed company can raise capital through private placement or a rights issue, but it cannot do an IPO while listed on the platform.

"In case of a rights issue, there shall be no option for renunciation of rights and the company seeking to get listed on ITP shall agree to make necessary amendments to its articles of association to this effect," the circular added.

Company promoters must hold at least 20% of the post-listing capital and this will be locked-in for three years from the date of listing.

Companies can exit the ITP and list on any of the main bourses only after receiving approval to do so from at least 90% of their shareholders. A listed company will have to exit the exchange within 18 months if its revenues exceed INR3 billion in the last audited financial statement or if its market capitalization exceeds INR5 billion.

The ITP is expected to offer existing investors a better chance to find alternate buyers for exits, as both IPOs and corporate M&A of new companies are lacking in India. These exits might also be tax efficient as a sale over a listed platform attracts less capital gains tax - there's a 10% levy if the investment is less than a year old, and no tax if it is longer.

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• Topics
• South Asia
• Regulation
• India
• Exit
• SEBI
• regulation