IPOs of start-ups in India: Retail investors participation may get cleared

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Retail investors might soon be allowed to participate in the initial public offerings (IPOs) of start-ups with the Securities and Exchange Board of India (Sebi) planning to scrap the Institutional Trading Platform (ITP) for these firms. The move comes after the platform failed to witness a single listing since it was launched last year.

Sources privy to the development said instead of providing an exclusive platform for start-ups, Sebi is now planning to allow start-ups to list on the regular platform. However, some relaxations would be provided  in terms of disclosures and compliance norms. Sebi is planning to amend both the Issue of Capital and Disclosure Requirements (ICDR) and Listing Obligations and Requirements (LODR) regulations, accordingly.

As per the regulations relating to Capital Raising and Listing on Institutional Trading Platform regulations for start- ups, only institutional investors and high-net worth individuals (HNIs) are allowed to trade on ITP and the minimum ticket size was `10 lakh. Retail investors were not allowed to invest in such issues as the markets regulator felt small investors should be safeguarded against a higher level of risks associated with the platform.

Several start-ups have expressed concerns about the liquidity on ITP. Further, not even a single company has filed for an IPO on the special platform till date. Hence, Sebi wanted to review the regulations and address the concerns raised by the start-ups,” said a member of Sebi Primary Markets Advisory Committee (PMAC).

Allowing start-ups to list on the regular platform would also address the concerns regarding the minimum institutional ownership clause in the regulations. As per the current regulations, to be eligible to raise funds via an IPO, 50% of the pre-issue capital of the company must be held by qualified institutional buyers (QIBs). In the case of e-commerce and technology start-ups, 25% of the pre-issue capital should be owned by institutional investors.

In August 2015, the regulator had announced a new set of listing regulations for start-ups operating in the e-commerce space in sectors such as information technology (IT), data analytics and biotechnology.The regulations provided several relaxations to start-ups keeping in mind the unique nature of the industry including removal of caps on the money spent by start-ups on publicity and advertisements as they need to spend much more for such purposes.

Infibeam, an e-commerce company that went for an IPO in the current calendar year, chose to list on the main board instead of the ITP. Although the company filed its draft prospectus with the regulator before the ITP was announced, the company had a choice to migrate, subsequently. According to investment bankers, the company didn’t choose ITP because of concerns about the platform.

 

Source:http://www.financialexpress.com/markets/indian-markets/ipos-of-start-ups-in-india-retail-investors-participation-may-get-cleared/323787/

Temasek scouts for more investments in India

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Temasek Holdings, Singapore government’s investment company, will continue to scout for investments across consumption-oriented segments in India this year, even as it’s open to opportunities from other sectors.

In the previous year, the company’s bigger investments were in consumption-oriented segments such as healthcare and pharmaceuticals, financial services (including insurance), technology (e-commerce or payment) and consumer (FMCG companies).

The investments were made across public and private companies.

“That trend is likely to continue, and that’s where we see most of the India story playing out, unless there are certain opportunities that come up from other sectors.

“We are always open to opportunities from other sectors too,” said R Venkatesh, Managing Director, Temasek Holdings Advisors India Pvt Ltd.

For the sector-agnostic investment firm, there is no preferred exit mode, and previously the company has exited through various modes such as strategic stake, secondary sales and IPOs.

On an average, the company has invested more than $1 billion every year in India across sectors such as consumer, financial services, new economy, healthcare and pharmaceuticals.

“We don’t have an industry allocation, a country allocation or any type of deal allocation. It’s entirely based on the deals that make the cart. Our investments are very much bottoms up, and depends on opportunities,” said Promeet Ghosh, also a Managing Director at Temasek Holdings Advisors.

Temasek, which started its Indian operations in 2004, has investments in companies such as Bajaj Corp, Crompton Greaves, Oberoi Realty, GMR Energy, Axis Bank, Glenmark Pharma and Sun Pharma.

India is one of the markets across the world the company is focusing on due to good macros, great demographics and a rising middle-income population, Ghosh added.

Dip in net portfolio value

Last week, Temasek posted a net portfolio value of S$242 billion for year ended March, lower from S$266 billion posted during the previous year.

This was the Singapore investment company’s first portfolio decline since the 2009 global financial crisis.

India’s exposure to that was about 5 per cent, which was a rise from 4 per cent last year.

“This is reflective of a mark-to-market fall in some of our listed portfolio companies across the world. About 60 per cent of our portfolio is listed and about two-thirds of these are exposed to markets in Hong Kong and Singapore stock exchanges, which have fallen between 15-26 per cent,” Venkatesh said.

Source: http://www.thehindubusinessline.com/companies/temasek-scouts-for-more-investments-in-india/article8840335.ece

PE exits set to see new record through IPOs this year

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With RBL Bank and Aster DM Healthcare planning to raise Rs 1,500 crore and Rs 1,600 crore, respectively, through initial public offerings (IPOs) this year, private equity investors are set to make a record exit using the primary market route.

According to Prime Database, a Delhi-based financial services firm providing research on IPOs, the first six months of the year saw PE investors exit stakes worth Rs 2,993 crore across six IPOs. These include small finance bank Equitas raising Rs 2,176 crore through IPO in April. Twelve PE investors including International Finance Corporation and Sequoia Capital sold stake worth Rs 1,454 crore in the issue, making part or full exit.

The first six months of the year has already seen more PE exits through IPOs than the annual record of Rs 2,346 crore across 12 IPOs in 2015.

“The value of exits is related to the size of the company looking to list and in recent times, we have seen larger companies coming to the market,” said Subhrajit Roy, executive director and head (equity capital markets origination) at Kotak Investment Banking. “Investors are increasingly focusing on post-listing liquidity, which is enhanced by a higher free float. The average deal size has been increasing to adhere to this requirement,” said Roy.

While Ratnakar Bank’s IPO will see PE funds Gaja Capital and Capvent India making part exits, that of DM Healthcare will see India Value Fund and Olympus Capital paring their stake. Another PE-backed company, Varun Beverages, has also planned to raise Rs 1,000 crore through an IPO this year by providing liquidity platform for its PE investors AION Global and Standard Chartered Private Equity. “The PE activity over the past few months was characterised by an increase in buy-outs, the restart of investments in infrastructure projects especially roads, PE-backed IPOs and continued robustness in fund raisinPE exits set to see new record through IPOs this yearg,” said Mayank Rastogi, partner and leader for PE at consulting firm EY.

“Owing to the strong listing performance of PE-invested firms in the past 12 months, a long list of IPOs is being lined up amongst PE-invested companies,” said Rastogi.

PE exits set to see new record through IPOs this year. Increasing PE exits through IPOs is also credited to the performance of secondary markets. Sensex, the benchmark index of the BSE, has risen four per cent to 27,167 this year. Also the average price-to-earnings ratio for 30 Sensex companies is 20.13 now, against five-year average of 17.93. This has given PE-backed companies an opportunity to provide their investors’ exit through the IPO route.

“As the broad secondary markets remain buoyant, we will see more and more PE-backed IPOs where the investor would make only partial exits,” says Pranav Haldea, managing director at Prime Database Group. “PEs want to keep their skin in the game as they expect secondary markets to do better from hereon.”

Source: http://www.business-standard.com/article/specials/pe-exits-set-to-see-new-record-through-ipos-this-year-116070600752_1.html

IPOs: here’s how much money India Inc raised in May

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Money raised through public issues in 2016 so far is three fold higher compared to the same period in 2015.

Indian companies raised Rs 6,744 crore through initial public offerings (IPOs) during the first five-and-a-half months of 2016, according to Prime Database.

The year so far witnessed 11 companies making their debut on the exchanges, with healthcare, finance and investments firms dominating  issuances.

Although all the IPOs were oversubscribed, only five of the 11 companies reported listing gains. Firms such as Ujjivan Financial Services, Thyrocare Technologies and Team Lease Services saw an overwhelming response, with their issues being oversubscribed between 38% and 41%.

The public issue of Mahanagar Gas, which closed last week, was oversubscribed 65 times. The IPO, which aimed to raise R1,040 crore, was fully subscribed on the first day. The public issue of Bangalore-based staffing firm Quess Corp, which aims to raise R400 crore, will open on Wednesday.

Source: http://www.financialexpress.com/article/markets/indian-markets/firms-raise-rs-6744-crore-via-ipos-till-mid-may/300205/

Listed company’s documentation may get simpler

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The Securities and Exchange Board of India (Sebi) is learnt to be finalising a new mechanism to simplify the documentation process for listed companies wishing to issue new securities. Sources told FE that the concept of an ‘annual information memorandum’ will be introduced by the regulator, replacing the traditional offer document, if a company plans subsequent public issues via an offer for sale (OFS) or a follow-on public offering (FPO).

This memorandum is expected to provide exhaustive information about a company including financials, pending litigations and risk factors. Companies will have to file the document once a year. To incorporate the new mechanism, Sebi will amend Listing Obligations and Disclosure Requirement (LODR) regulations.

As per the current LODR regulations, a company needs to file an offer document whenever it comes up with a public offering. However, offer documents are not mandatory in the cases of private placement like preferential issue, qualified institutional placements (QIPs), etc. The documentation is also not mandatory in case of rights issue where the company plans to tap existing shareholders.

Offer documents are usually drafted by merchant bankers in coordination with legal advisers. Post introduction of annual information memorandum, a company will be able to cut on the fees paid to merchant bankers and lawyers for the issue.

“Currently, we have the concept of annual reports. The new mechanism is a step forward. Annual information memorandums would provide additional details like pending litigations, etc. The regulator would come up with a format for the memorandum soon. This will also help investors get all the information about a company at a single place,” said an investment banker who is part of the primary markets advisory committee (PMAC) of Sebi.

As per the current LODR regulations, a company needs to upload an annual report which should contain audited financial statements, cash flow statements,directors report and management discussion and analysis report. The top 500 listed entities in terms of market capitalisation should also disclose business responsibility report describing initiatives taken by them from an environmental, social and governance perspectives.

In October 2015, Sebi had introduced the concept of abridged prospectus that companies need to file for public offers. Under this mechanism, any company going for an IPO needs to file an abridged prospectus along with the regular draft red herring prospectus (DRHP). The abridged prospects would be a 10-page document which would provide all the key information to the investor about the company. The decision was taken in the interest of investors as the full DRHP of a company runs into 400-500 pages.

Source: http://www.financialexpress.com/article/industry/companies/listed-companys-documentation-may-get-simpler/273624/

Silicon Valley venture capitalists raise more money, give less away

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Venture capitalists are raising money at the fastest rate in a decade, raking in about $13 billion in the first quarter of 2016.

But much of that cash won’t flow into new startups anytime soon. Rather, venture firms are bracing for a downturn and boosting reserves to keep companies they have already backed from going bust, said venture capitalists and limited partners.

“They are squirrels trying to pack their cheeks full of nuts,” said Ben Narasin, a partner at Canvas Ventures. “Everyone has been waiting for winter to start for a long time.”

The paradox of rising venture fundraising and falling venture investing is the latest sign of a tectonic shift in the tech startup realm. The extraordinary growth of so-called “unicorn” companies such as Uber and Airbnb – now valued at tens of billions of dollars, based on venture investments – has left many high-value startups with no “exit strategy,” in Silicon Valley parlance.

Burned by previous busts, Wall Street has lost its appetite for initial public offerings from money-losing companies. No venture-backed tech startup has gone public this year, and the few that did last year – including enterprise storage company Pure Storage, and cloud storage and file-sharing firm Box – have seen their share prices steadily sink. High valuations have also scared off potential acquirers.

Scale Venture Partners exemplifies the cautious approach taking hold in the VC industry. It chose to do one fewer investment from its last fundraising round and to increase its reserves by more than 10 percent.

“We will have to support our companies longer,” said Rory O’Driscoll, a partner at the firm, which raised a $335 million fund in January.

Accel Partners has reduced its pace of new investments since the middle of last year, while increasing its follow-on funding for portfolio companies, according to an analysis by venture capital database CB Insights.

The venture firm raised $2 billion in March, but it won’t tap into the new fund until late fall, said managing director Richard Wong.

Total U.S. venture investment fell to $12.1 billion in the first quarter – down 30 percent from the most recent peak of $17.3 billion in the second quarter of last year.

Chris Douvos, managing director of Venture Investment Associates, an investor in early-stage venture funds, says the funds he backs are increasing their reserves by 10 percent to 25 percent over what they had in previous funds.

The $13 billion raised by VCs is the third-largest quarter for fundraising since the dot-com peak in 2000, according to Thomson Reuters data. There is now $382 billion of dry powder – cash available to spend – held by both venture capital and private equity firms that invest in technology companies, according to investment banking and consulting firm Bulger Partners.

“It’s fast, and it’s a lot of dollars this year,” said Beezer Clarkson, managing director at Sapphire Ventures, which invests in early-stage venture funds.

Many VCs believe that more reserves will be needed for the big cash infusions that startups often need after establishing themselves but before turning a profit.

VCs are also seeing mutual funds retreat from late-stage startup financing deals. Mutual funds led just eight deals in the fourth quarter of last year, down from 26 in the second quarter, according to the research firm CB Insights.

The confluence of trends means that money-losing startups likely will struggle more for venture capital. That, in turn, could lead to more companies failing or cutting staff, cooling the red-hot market for tech talent. It could also strengthen the hand of dominant tech companies, who may face fewer disruptive rivals and attract employees tired of volatile startup life, according to tech recruiters.

CASH BURN

Until recently, many venture capitalists have had a land-grab mentality, even with more obscure startups such as Magic Leap – an augmented reality company that raised about $800 million in February – or Social Finance, a startup in the highly scrutinized fintech sector that raised $1 billion in September.

Investors competed fiercely to finance hot companies they believed could be the next Google or Facebook. Higher prices for smaller stakes drove up valuations in companies, including many who burned cash quickly in a quest for growth. Many venture capitalists say they overpaid by 20 to 30 percent, and now have to keep those companies afloat.

Over the past six months, however, nervous whispers about a tech bubble have sparked rising skepticism of venture-dependent startups with stratospheric price tags.

The same venture capitalists who jousted in bidding wars for the next great deal just six months ago are now fending off appeals.

Canvas Ventures, Norwest Venture Partners and Accel Partners – among Silicon Valley’s more prominent firms – say they are getting more calls from peers asking them to join a late-stage round for companies running out of cash.

“We get a lot more ‘special opportunities, just for you,'” said Wong, of Accel Partners. “We get the phone calls, along with everyone else.”

PAPER GAINS

For now, venture capitalists have little problem raising money, despite their new hesitance to spend it and the inability of many startups to turn profits or go public.

That’s in part because many VC firms are currently showing huge paper gains in the value of their portfolios. Many firms are raising as much as possible now, in case valuations drop in so-called “down rounds,” when later stage investors pay less for company stakes than earlier ones, and the returns on their investments plummet, according to limited partners.

Signs of falling returns are already emerging. Cambridge Associates, an investment advisor, measured a -0.4 percent return on the U.S. Venture Capital Index for the third quarter of last year, the first down quarter since 2011.

First Round Capital, an early-stage venture firm, warned its limited partners in a letter a year ago that the seed-stage venture capital deals will see much lower returns in the next several years.

But that warning didn’t scare Douvos, an investor in First Round, which was an early backer of Uber and made a bundle on the IPOs of Square and OnDeck Capital.

“Fund performance will soften,” Douvos said. But, he said, “The returns from First Round are so good that nothing else really matters.”

Read Source: http://www.reuters.com/article/us-venture-fundraising-idUSKCN0Y41DQ

 

SME….! A New Opportunity for Private Company..!!!

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SME ExchangeIn the Present era, the market is booming up so every company wants to take the opportunity to capitalize the same more from market and want to get maximum benefits out of that.

Listing will help them enter capital markets (SME Exchange) and finally to graduate on to mainboard. The SME platform provides opportunity to entrepreneurs to raise equity capital for growth and expansion. It also provides immense opportunity for investors to identify and invest in good SMEs at an early stage.

Let’s see what are the ways available for companies to avail such benefits.

What is SME?

SME means Small and medium-sized enterprises or small and medium-sized businesses (SMBs) are businesses whose personnel numbers fall below certain limits.

What is SME Exchange?

“SME exchange” means a trading platform of a recognized stock exchange having nationwide trading terminals permitted by the Board to list the specified securities issued in accordance with this Chapter and includes a stock exchange granted recognition for this purpose but does not include the Main Board”.

So now question that arises is how those benefits can be obtained…. the simplest answer is by listing in SME Platform.

What are the Criteria for Listing?

  • Incorporation

The Company shall be incorporated under the Companies Act, 1956 or 2013.

  • Financials

Post Issue Paid up Capital

The post-issue paid up capital of the company shall be at least Rs. 3 crores.

  • Net-worth

Net worth (excluding revaluation reserves) of at least Rs. 3 crores, as per the latest audited financial results.

  • Net Tangible Assets

At least Rs. 3 crores as per the latest audited financial results.

  • Track Record

Distributable profits in terms of Section 123 of the Companies Act 2013 for at least two years out of immediately preceding three financial years (each financial year has to be a period of at least 12 months). Extraordinary income will not be considered for the purpose of calculating distributable profits. Or

The net worth shall be at least Rs. 5 crores.

  • Other Requirements

It is mandatory for a company to have a website.

It is mandatory for the company to facilitate trading in demat securities and enter into an agreement with both the depositories.

There should not be any change in the promoters of the company in preceding one year from date of filing the application to Different Exchange for listing under SME segment.

  • Disclosures

A certificate from the applicant company / promoting companies stating the following

  1. a) ” The Company has not been referred to the Board for Industrial and Financial Reconstruction (BIFR).”

Note: Cases where company is out of BIFR is allowed.

  1. b) There is no winding up petition against the company, which has been admitted by the court or a liquidator has not been appointed.
  • Migration from Different Exchange SME Platform to the Main Board

The companies seeking migration to Main Board of Different Exchange should satisfy the eligibility criteria It is mandatory for the company to be listed and traded on the Different Exchange SME Platform for a minimum period of two years and then they can migrate to the Main Board as per the guidelines specified by SEBI vide their circular dated 18th May 2010 and as per the procedures laid down in the ICDR guidelines Chapter X B.

What are the Benefits of Listing in SME

1. Easy access to Capital

Different Exchange SME provides an avenue to raise capital through equity infusion for growth oriented SME’s.

2. Enhanced Visibility and Prestige

The SME’s benefit by greater credibility and enhanced financial status leading to demand in the company’s shares and higher valuation of the company.

3. Encourages Growth of SMEs

Equity financing provides growth opportunities like expansion, mergers and acquisitions thus being a cost effective and tax efficient mode.

4. Ensures Tax Benefits

In case of listed securities Short Term Gains Tax is 15% and there is absolutely no Long Term Capital Gains Tax.

5. Enables Liquidity for Shareholders

Equity financing enables liquidity for shareholders, provides growth opportunities like expansion, mergers and acquisitions, thus being a cost effective and tax efficient mode.

6. Equity financing through Venture Capital

Provides an incentive for Venture Capital Funds by creating an Exit Route and thus reducing their lock in period.

7. Efficient Risk Distribution

Capital Markets ensure that the capital flows to its best uses and that riskier activities with higher payoffs are funded.

8. Employee Incentives

Employee Stock Options ensures stronger employee commitment, participation and recruitment incentive.

How are the Listing Procedures done?

This is as simple as we understand & execute the following steps!!!

Planning

The Issuer Company consults and appoints the Merchant Banker/s in an advisory capacity.

Preparation

The Merchant Banker prepares the documentation for filing after, conducting due diligence regarding the Company i.e checking the documentation including all the financial documents, material contracts, government approvals, Promoter details, planning the IPO structure, share issuances, and financial requirements

Process

Application procedure:

Submission of DRHP/Draft Prospectus – These documents are prepared by the Merchant Banker and filed with the Exchange as well as with SEBI as per requirements.

Verification & Site Visit – Different Exchange verifies the documents and processes the same. A visit to the company’s site shall be undertaken by the Exchange official .The Promoters are called for an interview with the Listing Advisory Committee.

Approval – Different Exchange issues an In-Principle approval on the recommendation of the Committee, provided all the requirements are compiled by the Issuer Company.

Filing of RHP/Prospectus – Merchant Banker files these documents with the ROC indicating the opening and closing date of the issue.

Once approval is received from the ROC/MCA, they intimate the Exchange regarding the opening dates of the issue along with the required documents.

Public Offering

The Initial Public Offer opens and closes as per schedule. After the closure of IPO, the Company submits the documents as per the checklist to the Exchange for finalization of the basis of allotment.

Post Listing

Different Exchange finalizes the basis of allotment and issues the notice regarding Listing and Trading.

Any Guidelines for Listing?

Yes the Company has to follow the below guidelines.

Capital
The post issue face value capital should not exceed Rs. Twenty-five crores.

Trading lot size

The minimum application and trading lot size shall not be less than Rs. 1,00,000/- .

The minimum depth shall be Rs. 1,00,000/- and at any point of time it shall not be less than Rs. 1,00,000/-.

The investors holding with less than Rs. 1,00,000/- shall be allowed to offer their holding to the Market Maker in one lot.

However in functionality, the market lot will be subject to revival after a stipulated time.

Participants
The existing Members of the Exchange shall be eligible to participate in SME Platform.

Underwriting
The issues shall be 100% underwritten and Merchant Bankers shall underwrite 15% in their own account.

So at last we can say that, if you want to increase the reputation of your company in the developing Countries like India, then you should have to register your Company in SME Platform because ultimately your company gets reputation as it is traded in Exchange Platform so Goodwill of the company  also increases and ultimately you achieve your profit.

This is best platform provided to the company for those companies who have not much of Paid Up Capital and also are less reputed but by registering in SME Platform, the company not only gets reputation all over India at large but also the company gets Profit by availing Tax benefits up to some extent. Thus,Small companies can now think big.

So considering the above fact, companies should have to opt for this option and after few years, the company would also be transferred from SME Platform to Main Board, hence your company is considered as the same as other reputed companies.

So by considering the Current Market Scenario every Private Company as well as Unlisted Public Company has to think on this matter and work accordingly. Though this facility has been available since long but few of them were able to grab this opportunity. Now it’s time to rethink about this opportunity.

SME Capital Markets so far

The SME Capital market in India has seen a flurry of activities in past 3 years. SME Platform has opened up immense opportunities not only for the small and medium enterprises to maximize wealth and gain visibility but also provides new investment opportunity to investors.Increasing number of companies are participating on SME Exchanges of BSE and NSE.
So far, 119 companies have got listed on BSE SME Exchange and 11on NSE Emerge. Further, several companies have filed their draft offer documents with these Exchanges. The total market capitalization of SME Exchanges has peaked over INR 10,000 Crores. These facts are remarkable, given the initial phase of SME capital markets that too in challenging times when even Main Board primary markets have witnessed little activity.

 

Growth Opportunities for SMEs

These recent initiatives of capital markets aim at bridging the gap between SMEs and capital markets by providing an opportunity to SME entrepreneurs to raise growth capital and reap benefits of listed space. SME entrepreneurs spot a ray of fresh light and hope for raising growth capital in economical and tax efficient manner and move up the ladder towards next-level growth. In the process, this opens up as a immense opportunity for capital markets, market intermediaries and professionals.