Context:
The Securities and Exchange Board of India (SEBI), in its latest board meeting, introduced a comprehensive set of regulatory changes aimed at improving the capital-raising ecosystem for startups, simplifying delisting norms for PSUs, and enhancing operational flexibility for AIFs, REITs, and InvITs. These changes come amid global financial uncertainties and are expected to boost domestic fundraising and investment flows.
Key Reforms for Startups
- ESOP Clarity for Founders: Startups can now issue and allow the exercise of ESOPs to founders/promoters if granted at least one year before the filing of the Draft Red Herring Prospectus (DRHP).
- Dematerialisation Mandate: Senior management must now dematerialise their shareholdings before DRHP filing.
- Lock-in Period Scrapped: One-year lock-in for shares derived from Compulsorily Convertible Securities (CCS) removed, easing participation in Offer for Sale (OFS).
- Reverse Flipping Incentivised: Reforms will support Indian listings of startups initially launched abroad.
- Promoter Contribution Expanded: Shares held by foreign VC funds, AIFs, and public financial institutions can now count toward minimum promoter contribution in IPOs.
Co-Investment Vehicle (CIV) Framework under AIFs
- New CIV Framework: Category I and II AIFs can now form Co-Investment Vehicles (CIVs), simplifying co-investments for AIF investors.
- Streamlined Investment Process: Investors can co-invest in portfolio companies without routing through external PMS structures or breaching restrictions on unlisted companies.
REITs and InvITs Regulation Changes
- Unit Classification: Units held by related parties will no longer be counted as public holding.
- Cash Flow Flexibility: Holding companies can offset negative standalone net distributable cash flows against income from Special Purpose Vehicles (SPVs) before distribution, with disclosures.
- Reduced Minimum Investment: For privately placed InvITs, the minimum allotment size has been reduced from â‚ą1 crore to â‚ą25 lakh.
Simplified PSU Delisting Norms
- Eased Exit for Majority-Govt PSUs: New delisting norms apply to PSUs where the government holds at least a 90% stake. Around five listed PSUs could benefit.
BS
