25 June 2015

I have a piece hosted on "The Firm" on the "For New Age Companies - From SEBI, With Love" on the new segment of institutional trading platform allowing 'new age' companies and the like to list in India rather than look for listing abroad. I think it is a good development though it should over time move from a separate segment into the main trading board of the exchanges (with a larger trade size of Rs. 10 lac (Rs. 1 million)). Copied below is the full piece.

The SEBI board decided to enable a 'Simplified Framework for Capital Raising by technological start ups and other companies on Institutional Trading Platform' is a big step forward for all Indian companies seeking domestic listing.

To set the context, we already have a main board where companies list. We have a relatively recent SME board for small and medium sized companies and we also have another relatively recent Institutional Trading Platform (or ITP). 

The Still Born ITP
The proposed simplified framework is essentially a reform of the rather unworkable ITP segment. If one were to summary the new ITP (NITP) it allows companies, particularly technology oriented companies to raise capital for general corporate purpose from sophisticated investors. To be sure, this platform is for capital raising and it is for rather large companies (minimum investment of Rs. 10 lacs with minimum 200 investors mean a total capital raise of Rs. 20 crores) of capitalisation of approximately Rs. 100 crores or upwards. The NITP is also a big change from the nitpicking ITP requirements which included the maximum age of the company, the maximum revenue of the company, the maximum size of the company, the latest time when the CEO wakes up (kind of).

NITP Is Now Born
The NITP is a big step forward, not just from the ITP in existence but also from the draft proposal for the NITP which was full of silly requirements. It is a tribute to SEBI's openness that all the silliness has gone away (Finsec among many had commented on the draft paper). 

NITP Not An Alternate Market
It should be noted that except for the purpose of raising funds and some relaxations in reaching the valuations, there is no relaxations from either disclosure standards (with a minor exception relating to immaterial issues which can now be disclosed on the website of the company) or corporate governance standards. In other words this is not forum like the AIM market or other alternate segments. This is a big boys market where both the issuer and the investors are big boys (minimum issue size and trading lots are both Rs. 10 lacs). The main purpose of NITP is to bring a market which was travelling abroad - onshore. This is likely to be effective in achieving that purpose.

Over the medium term I would like to see the NITP being transformed from a separate trading segment into the primary board itself, where the trading size remains Rs. 10 lacs or multiples. This should achieve the purpose of segmenting sophisticated investors from unsophisticated without fragmenting the market.

1 comment:

Mandar said...

Thank you for the analysis. If the disclosure standards are not significantly diluted, whats the motivation behind keeping the retail investors outside this investment loop? (Is the lack of traditional valuation metrics enough reason to justify this paternalism)? I think this blanket denial to benefit from the from the opportunity is an agency cost SEBI is imposing. While well intentioned, this regulatory culture thwarts fin. market development. (Also, one of its statutory objectives).