As SEBI reforms startup listing, SMEs must ensure funds are not misused

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SME ExchangeAmid SEBI banning as many as 239 entities for alleged money laundering, taxation consultancy PwC has called for a three-year locking-in for the entire pre-listing capital held by promoters to curb tax evasion and other illegal activities through market platforms.

The agency has called for imposing a similar lock-in even for preferential allotments, as prescribed under the capital and disclosure requirement (ICDR) norms so that only serious investors access the market. The PwC report is part of a BSE-mandated review of SME listing process.

The premier bourse last week said that 100 entities were trading on its SME platform. The regulator Securities and Exchange Board (SEBI) on June 29 banned four publicly traded SMEs and 235 other related entities for alledgely misusing the exchange’s platform for money laundering and tax evasion.

The SEBI, in an interim order alleged that these entities made Rs 614 crore in illegal gains through suspected money laundering and tax evasion activities. The four companies banned are EcoFriendly Food Processing Park, Esteem Bio Organic Food Processing, Channel Nine Entertainment and HPC Biosciences. These are traded on the BSE SME Platform.

“The institutional trading platform (ITP) could be utilised as a tool for tax planning by staying invested in an SME for a period more than 12 months and exiting at a very high stock price thereby making huge gains with no tax liability,” PwC said in the report.

Accordingly, the report has suggested that the entire pre-listing capital held by promoters should be locked in for three years as “such restrictive conditions would discourage people from accessing the platform only for tax planning”. The BSE had launched ITP for its SME platform to facilitate start-ups and other SMEs to list without the mandatory IPO process which is time-consuming and capital intensive that small companies can hardly afford.

According to PTI, in addition to allowing SMEs and start-up companies to raise capital, the BSE SME platrfom also provides easier entry and exit options for informed investors like angel investors, venture capitalists and private equity players, apart from offering better visibility and wider investor base and tax benefits to long-term investors.

Meanwhile, the report also called for a reduction in trading lot size and shorter interval for review of lot size after many SMEs, merchant bankers and market-makers cited this as a disincentive for entering the market. The report said market participants want the timeframe to review the lot size to be reduced from the current six months and lower the trading lot requirement of Rs 1 lakh to attract retail investors to the segment.

As SEBI continues to make business easier, it is important SMEs do not eye illegal gains through suspected money laundering and tax evasion activities.

 

I-T department bars CAs from valuing shares of closely held firms

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The income tax (I-T) has barred all Chartered Accountants (CAs) from valuing shares of closely-held companies.

Earlier, the fair market value of unlisted equity shares was calculated at the option of the company on either the book value on the valuation date or by the discounted cash flow method. Calculated by a merchant banker or a CA.

However, the Central Board of Direct Taxes has removed the CAs from the list of authorised professionals in this regard. From Thursday, only a merchant banker may do this. This change brings this provision at par with Rule 3 of the I-T Act, which says only a merchant banker may calculate the value of unlisted shares issued under Employee Stock Ownership schemes.

Interestingly valuation of shares may still be done by CAs under the Companies Act.

So, unlisted shares or unlisted companies may be sold or valued by a CA’s valuation but, for I-T purposes, it will require a merchant banker’s valuation report.

It is expected that the government is considering a qualifying course for valuation; only those who clear it may do valuation.

Source: Business Standard

SEBI panel proposes stricter norms for RTAs

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SEBI proposed that the board of RTA should have public interest directors when it becomes a QRTA.

A Securities and Exchange Board of India (Sebi) panel on Friday proposed tighter ownership and governance norms for registrar and transfer agents (RTAs).

According to a discussion paper released by Sebi, the panel, headed by former Reserve Bank of India (RBI) deputy governor R. Gandhi, felt that since RTAs manage sensitive investor-related data, there need to be stricter governance rules for them.

RTAs maintain detailed records of all investor transactions in mutual funds and shares. They also help investors complete their transactions and receive a record of their account statements.

This is the second discussion paper by the panel after some market participants suggested it should add credit rating agencies (CRAs), RTAs and debenture trustees (DTs) in the list of market infrastructure institutions (MIIs) and frame stricter norms for them, similar to those followed by MIIs such as exchanges, depositories and clearing corporations.

The panel, however, felt RTAs, CRAs and debenture trustees need not be categorized as MIIs but suggested that RTAs should have tighter norms.

In September 2017, Sebi had defined qualified RTAs (QRTAs) as “RTAs servicing more than 20 million folios”. The Sebi panel felt that once an RTA becomes a QRTA, enhanced ownership norms should be applied to them.

In India, there are only two RTAs (Karvy Computershare Pvt. Ltd. and Computer Age Management Services Pvt. Ltd.) which service 90% of the mutual fund folios. Karvy has around 40% market share in corporate folios.

The Sebi panel said QRTAs should either have a dispersed ownership or be owned by regulated entities or entities in the business of RTA.

While regulated entities can be allowed to hold 100% in RTAs, unregulated entities should not be allowed to hold more than 49% collectively and 15% individually in RTAs, the panel said. If the QRTA is an in-house entity or one that performs the function exclusively for one entity only, such ownership norms may not be required, the paper said. However, when an RTA becomes a QRTA, it may be given five years to achieve the proposed ownership structure, said the Sebi panel.

Sebi proposed that the board of RTA should have public interest directors (PIDs) when it becomes a QRTA.

“If the chairperson is a non-executive director, the QRTA shall have at least one-third of the board of directors as PIDs; and where the QRTA does not have a regular non-executive chairperson, it shall have at least half of the board of directors as PIDs,” according to the Sebi panel.

With regard to CRAs, the panel said since Sebi has already put in place tighter norms for CRAs, they need not be categorized as MIIs and be subjected to further stringency.

However, the panel proposed that the so-called “Appeal Committee” in CRAs should be renamed as ‘Review Committee’, as the word appeal has a legal connotation to it. Further, the review committee of CRAs should have independent members, the Sebi panel said.

On DTs, which act as intermediaries between the issuer of debentures and the holders of debentures, the Sebi panel said there are already quite a few challenges before them in performing their obligations and that the function of DTs is still evolving. “Therefore, the committee is of the view that the review of ownership and governance of DTs is not the immediate priority.”

Source: Live Mint

SEBI puts in place new framework to check non-compliance of listing rules

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Sebi has put in place a stronger mechanism to check non-compliance of listing conditions, wherein exchanges will have powers to freeze promoter shareholding and even delist the shares of such defaulting companies.

The move is aimed at maintaining consistency and adopting a uniform approach in the matter of levy of fines for non-compliance with certain provisions of the listing regulations.

Under the new framework, exchanges would have the power to freeze the entire shareholding of the promoter and promoter group in non-compliant listed entity also holding in other securities, the Securities and Exchange Board of India (Sebi) said in a circular.

Besides, exchanges can levy fines on non-compliant company, move the stocks of such firms to restricted trading category and suspend trading in the shares of such entities.

Further, in case an entity fails to comply with the requirements or pay the applicable fine within six months from the date of suspension, the exchange will need to initiate the process of compulsory delisting.

The new rules would come into force with effect from compliance periods ending on or after September 30, 2018.

Grounds for suspension from listing include failure to comply with the board composition including appointment of women director and failure to constitute audit committee for two consecutive quarters; failure to submit information on the reconciliation of shares and capital audit report for two consecutive quarters.

According to new rules, Sebi has asked stock exchanges to impose penalties ranging from Rs 1,000-5,000 per day on violation of certain clauses of the listing agreement like non-submission or delay in submission of document related to the company’s financial and shareholding details, failure to appoint women director on the board.

Besides, the exchanges can levy a fine of Rs 10,000 per instance for delay in furnishing prior intimation about the company’s board meeting and delay in non-disclosure of record date or dividend declaration.

Such fines will continue to accrue till the time of rectification of the non-compliance to the satisfaction of the concerned recognized stock exchange or till the scrip of the listed entity is suspended from trading for non-compliance with the provisions of Listing Regulations.

Such accrual will be irrespective of any other disciplinary or enforcement action initiated by stock exchanges or Sebi.

Further, if a non-complaint entity is listed on more than one exchanges, the concerned bourses need to take uniform action in consultation with each other.

The board of directors need to be informed about the non-compliance and their comments need be made public so that investors can make informed decisions.

The exchanges would have to disclose on their websites the action taken against the listed entities for non-compliance of the listing conditions, including the details of respective including the details of respective requirement, amount of fine, period of suspension, freezing of shares, among others.

Every bourse is required to review the compliance status of the listed entities within 15 days from the date of receipt of information. Also, exchanges need to issue notices to the non-compliant listed entities to ensure compliance and pay fine within 15 days from the date of the notice.

If any non-compliant listed entity fails to pay the fine despite receipt of the notice, the exchange will initiate appropriate enforcement action including prosecution.

If the non-compliant listed entity complies with the Sebi’s requirement and pays applicable fine within three months from the date of suspension, the exchange will have to revoke the suspension of trading of its shares after seven days of such compliance and trading would be permitted only in ‘trade to trade’ basis for a week from revocation.

Source: Times of India

Listed SMEs to touch 1,000 in next 2 yrs: Merchant banker

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SME ExchangeThe number of small and medium enterprises listed on BSE and NSE platforms is expected to reach 1,000 in the next two years from nearly 350 at present, leading merchant banker Guiness Corporate Advisory Services said today.

More companies will tap the initial public offer (IPO) route for business expansion plans, to support working capital requirements and other general corporate purposes.

In the entire 2017, 132 SMEs raised a record Rs 1,785 crore through IPOs, much higher than 66 firms that garnered Rs 540 crore in 2016.

Besides, 2017 witnessed more fund-raising than aggregate capital garnered in past five years cumulatively. Overall, the firms mopped up Rs 1,315 crore in the last five years.

“Both the exchanges (BSE and NSE) have already listed nearly 350 SMEs in the last couple of years and this number will definitely reach to 1,000 during the next two years,” Guiness said in a statement.

The firms will be from various sectors such as media and entertainment, manufacturing, textiles, engineering, finance, chemicals, agriculture, food processing and construction.

“SMEs have very well embraced the idea of raising equity through IPO route in the last couple of years. There has been a phenomenal change, as they were perennially dependent on debt for their working capital and expansion plans in the past. This change will be a game changer for the growth of the SMEs in the country,” the merchant banker said.

BSE and NSE launched SME platforms in March 2012, becoming the only two bourses to offer such a segment in the country. Since then, more than 300 companies have got listed on these platforms.

“SMEs have really got benefited from this platform, we are encouraging more SMEs to come out with IPO. This would remain a great source of funds. Many listed SMEs have also moved to main board exchanges because of their growth in the last couple of years. This is also a good gateway for eventually get listed on the main platform of the exchanges,” BSE SME Head Ajay Thakur said.

 

Source: Times of India

117 companies raise Rs 62k cr via IPOs in Apr-Nov FY18, highest in 5 years

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As many as 117 companies have garnered a staggering Rs 62,736 crore through IPOs in the first eight months of Financial Year 2017-18, much higher than the cumulative amount raised in the last five fiscals, Parliament was informed on Friday.

These 117 initial public offers (IPOs) include 28 main- board public offers and the remaining for small and medium enterprises (SMEs), Minister of State for Finance Pon Radhakrishnan said in a written reply to Lok Sabha.


During April-November of 2017-18 fiscal, a total of 117 companies raised Rs 62,736 crore through IPO route. This was much more than the cumulative amount of Rs 62,147 crore garnered in the last five financial years.

Besides, the ongoing fiscal has witnessed the highest IPO activity since 2007-08, when companies had mopped up Rs 52,219 crore through the route.

The IPO chart in this fiscal is led by General Insurance Corporation of India (GIC) that garnered over Rs 11,176 crore. This was the largest public float by any firm after the October 2010 offer by Coal India which raised Rs 15,000 crore.

GIC is followed by New India Assurance Company that raised Rs 9,467 crore, HDFC Standard Life Insurance Company (Rs 8,695 crore) SBI Life Insurance Company (Rs 8,386 crore) and ICICI Lombard General Insurance (Rs 5,700 crore).

Individually, a total of 106 firms had garnered Rs 29,104 crore in the entire 2016-17, while 74 companies had raised Rs 14,185 crore in 2015-16.

Further, 46 firms had mopped up Rs 3,039 crore in 2014- 15, 40 companies had raised Rs 8,692 crore in 2013-14 and 33 firms had raked in Rs 6,497 crore in 2012-13.

 

Source: Business Standard

SEBI fixes penalty for non-compliance of shareholding norms

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SEBI has tightened the noose on listed companies not adhering to norms with regard to minimum public shareholding (MPS). Those that are non-compliant will have to pay a fine of Rs.5,000 a day. In addition, the entire promoter holding, except for compliance to MPS, will be frozen by depositories, and the promoter group and directors of the particular company will not be allowed to hold any position in other companies.

According to MPS norms, any listed company must have at least 25 per cent as public share holders while the remaining 75 per cent can be held by promoters. Government-promoted companies were given time till August 2018 to comply with these norms. Newly listed companies are given a three-year window to comply.

De-listing

Further, if the non-compliance continues for over one year the amount of fine per day will double to Rs.10,000 and such companies may even face compulsory de-listing of their shares from stock exchanges. Stock exchanges have been asked to share all the details of non-compliant companies on their website.

“Mandating penalties for non-compliance of MPS norms will surely act as a deterrent for the violators,” said Anjali Aggarwal, Partner & Head, Capital Market & Stock Exchange Services at Corporate Professionals, a law firm.

“But for any listed company, there may be many corporate actions such as forfeiture of partly paid shares/ buybacks/ takeover offers, etc, wherein promoter holding crossing the threshold of 75 per cent is beyond that company’s control, as it can’t be ascertained as to how many shareholders may tender their holding. A distinction needs to be carved for routine defaulters and for lapses that may happen because of any such corporate actions.”

In the past, SEBI has taken action against non-compliant firms but the penalty was not specified in the rule book.

In 2013, SEBI had first cracked the whip on 105 companies, including Adani Ports, BGR Energy Systems, Tata Teleservices and Videocon, for not complying with the MPS norms by freezing voting rights and corporate benefits of promoters, the promoter group and directors of these companies, until they complied.

Source: The Hindu Business Online