The Securities and Exchange Board of India (SEBI) has simplified rules for foreign investors and tightened the norms for buyback of shares by the companies.
It has also stipulated norms for ‘Angel Funds’, proposed in the last Union Budget.
While tightening the norms for companies to buy back shares, the SEBI has said that 50 per cent of the earmarked funds for a buyback have to be utilised by the corporates as against the existing stipulation of 25 per cent. “If they fail to do so, the amount in the escrow account will be forfeited, subject to a maximum of 2.5 per cent of the total amount earmarked,” the SEBI has said in a release issued here after its board meeting.
Further, the market regulator has reduced the maximum buy-back period to six months from one year.
It has also asked companies to create an escrow account towards security for performance equivalent to at least 25 per cent of the amount earmarked for buyback.
These companies will not be allowed to come out with another buyback offer within one year from the date of closure of the preceding offer, and the promoters of the company are also told not to execute any transaction, either on-market or off-market, during the buyback period.
The SEBI has also permitted listing of start-ups and SMEs (small and medium enterprises) in institutional trading platform (ITP) without making an initial public offering (IPO).
However, such companies eligible to be listed on this ‘institutional trading platform’ shall be accessible for investment only to investors such as Angel Investors, VCFs (venture capital funds) and PEs (private equities). While such companies are listed on the ITP, they will not be permitted to raise capital. However, they can continue to make private placements.
The SEBI board has accepted the recommendations of the K. M. Chandrasekhar Committee on ‘Rationalisation of investment routes and monitoring of foreign portfolio investments’ to simplify the norms for foreign institutional investors.
This move is expected to help entry of foreign funds without hassles.
With a view to enhancing transparency, ensuring adequate audit trail and applying lock-in for the shares allotted in preferential issues, the market regulator has said that preferential issue should be subscribed only through the allottee’s own bank account.
The issuing company should disclose the ultimate beneficial owner of allotted shares, it further says.
The board has approved the proposal to permit asset management companies managing schemes of mutual funds to take membership of debt segment of stock exchanges under ‘Proprietary Trading Member’ (PTM) category. However, this will be only to undertake trades directly on behalf of such schemes managed by them.
The board has decided to allow mutual fund distributors to take limited purpose membership of stock exchanges with lesser financial and compliance burden to use infrastructure of stock exchanges for distribution and redemption of mutual fund units.
Giving effect to the budget announcement, the SEBI has said that individual angel investors shall be required to have early stage investment experience/ experience as a serial entrepreneur/ be a senior management professional with 10 years experience. “They shall also be required to have net tangible assets of at least Rs.2 crore. Corporate angel investors shall be required to have Rs.10 crore net worth or be a registered AIF/VCF.”
It has also said that angel funds shall have a corpus of at least Rs.10 crore (as against Rs.20 crore for other AIFs) and minimum investment by an investor shall be Rs.25 lakh (may be accepted over a period of maximum three years) as against Rs.1 crore for other AIFs.
“The continuing interest by sponsor/manager in the angel fund shall be not less than 2.5 per cent of the corpus or Rs.50 lakh, whichever is lesser,” it further says.
For ensuring investments are genuine angel investments, the SEBI has mandated that angel funds shall invest only in investee companies which are incorporated in India and are not more than three years old; and have a turnover not exceeding Rs.25 crore; and are unlisted; and are not promoted, sponsored or related to an industrial group whose group turnover is in excess of Rs.300 crore; and has no family connection with the investors proposing to invest in the company.