NSE announces new guidelines for tech IPOs: Check here
The National Stock Exchange (NSE) has rolled out fresh guidelines, that will impact tech company founders who are preparing to launch their initial public offerings (IPOs). The new regulations stipulate that founders who hold more than a 10% stake in a company set for an IPO and hold executive roles, must be identified as promoters. This directive was relayed to investment banks during a meeting at the NSE last week.
Classification shift for tech companies eyeing IPOs
In the past, tech companies gearing up for IPOs identified themselves as "professionally managed companies with no discernible promoter" when submitting their draft red herring prospectus (DRHP) for the Securities and Exchange Board of India's (SEBI) approval. However, under the new NSE guidelines, these companies will now need to label their founders as promoters if they hold executive roles and more than a 10% stake in the company at the time of DRHP submission.
SEBI ramps up scrutiny on promoters
Last year, SEBI requested Healthvista India Ltd.'s founders, Meena Ganesh and Ganesh Krishnan, to identify themselves as promoters. Despite each holding less than a 10% stake in the company, together they held over 18%. The guidelines are part of SEBI's intensified scrutiny of promoters of companies preparing to go public with their IPOs.
Consequences of promoter label and easing of rules
Being labeled as a promoter comes with added responsibilities and liabilities, including increased disclosure requirements for the company. The company will need to disclose information about the promoter group, which includes the spouse and other family members of the founder. However, SEBI has also eased rules for minimum promoter contribution (MPC). This allows non-individual investors holding 5% or more post-offer equity share capital, to contribute toward MPC without being identified as promoters.
New guidelines likely to favor new-age tech companies
The easing of the rules is anticipated to make the IPO process more appealing for new-age technology companies where promoters have a low shareholding. Jabarati Chandra, a partner at law firm S&R Associates, said, "The change is a step in the right direction. We anticipate this will assist IPO-bound companies where the promoters were falling short on their post-IPO shareholding."
