SEBI (Listing of Specified Securities on Institutional Trading Platform) Regulations 2013 came into force on 08.10.2013. Slowly and gradually companies and the small & medium enterprises are becoming aware with the provisions of these regulations and had started availing its benefits. But still the pace is pretty slow. In the beginning itself some enterprises tried to take tax benefits arising out Institutional Trading Platform (ITP) listing and their objective was confined to the tax benefit on sale of Equity shares on stock exchange by virtue of section 10(38) of Income Tax Act, 1961. To enable the ITP to reach its actual goals some amendments are introduced in eligibility criteria for listing on ITP and trading of shares of such listed enterprise. Let’s have a brief look at the provisions and goals of the SEBI Regulations 2013 regarding ITP.
SEBI (Listing of Specified Securities on Institutional Trading Platform) Regulations 2013 are applicable to small & medium enterprises which do not have their securities listed on any recognised stock exchange and which seek listing of their specified securities exclusively on the institutional trading platform. ITP is a trading platform in a SME exchange for listing and trading of specified securities for informed investors.
Listing eligibility criteria and procedure:
The basic eligibility criteria lay down certain conditions to be fulfilled for listing on ITP.
These are some conditions which should be met for eligible for ITP.
In addition to the above one of the following conditions should also be met mandatorily:
Additional eligibility criteria laid down by BSE.
A) The minimum amount of above investment shall be 10 crores or 25% of the listed capital of the ITP Company, whichever is higher. Further, the same should be locked in for a period of three years from the date of listing.
Bifurcation of Rs, 10 crores shall be as follows:
1. Minimum investment of Rs. 50 lakhs by entities in equity shares of the company as prescribed by SEBI with a lock- in for a period of three years for all entities.
2. Balance amount of investment as per above limits (i.e. rupees ten crores or more, as the case may be) by any other SEBI approved categories of investors like qualified institutional buyers, etc. with a lock-in period of 3 years from the date of listing.
B) There should not be any change in the promoters of the company in preceding one year from date of filing the application to BSE for listing under SME segment.
C) The company shall satisfy at least one of the following criteria as on the date of application:
i) Net tangible assets of minimum Rs. 1 crore (net fixed assets plus net current assets)
Net income * (excluding extraordinary and other income) of Rs.50 lacs as per the latest audited financials
*(Net income = sales – purchases)
ii) There should not be any change in the promoters of the company in preceding one year from date of filing the application to BSE for listing under ITP segment.
iii) Companies have to compulsory sign agreement with both the depositories.
iv) In cases where merchant banker has made the investment in the company the MB would need to submit a Due Diligence Certificate in the format (Form A & H) as is prevailing in SME regulations.
The above is mandated by BSE only.
Additional eligibility criteria laid down by NSE
In case the company qualifies for listing on ITP because it has received working capital or project loan from a scheduled bank (point iii of the above list of criteria), a reference from the said bank will be obtained in the specified format to ascertain the track record of the company and timely servicing of the loan.
The above is mandated by NSE only.
The following matters should be disclosed in the offer document:
The eligible company may apply to a recognised stock exchange for listing of its specified securities on the ITP, along with an information document containing the specified disclosures. It has been mandated to host information document on the website of the recognized stock exchange and made public at least twenty one days from the date of such filing. On application the recognised stock exchange may grant in-principle approval to the company. On satisfaction that all the essential eligibility conditions are satisfied the recognised stock exchange may list the securities of the company on the institutional trading platform.
Listing shall not be accompanied by any issue of securities to the public in any manner. The Company is not permitted to make any Initial Public Offering while securities are listed on ITP. Further capital raising is permitted through rights issue or private placement. At least 20% of the Promoters capital shall be locked in for a period of 3 years from the date of listing. The minimum trading lot on institutional trading platform shall be ten lakh rupees. All specified securities of the company shall be in dematerialized form upon listing on institutional trading platform. The Company should have Connectivity with at least one depository at all times.
Exit from Institutional Trading Platform:
Voluntary Exit: A Company may voluntarily exit from ITP by complying with following-
Compulsory Exit: Company have to exit from ITP platform compulsorily if,
Other Criteria for Compulsory Exit: Post Listing Failure in comply with the Regulatory requirement may force for compulsory exit. A company listed on ITP shall be delisted and permanently removed from the institutional trading platform under the following circumstances:
a) the company has failed to file its periodic filings with the recognised stock exchange for more than one year; or
b) the company has failed to comply with corporate governance norm(s) for more than one year; or
c) The recognised stock exchange may delist the company on non-compliance of the condition of listing as may be specified by the recognised stock exchange.
In case of a company delisted under above criteria, no company promoted by promoters and directors of such delisted company shall be permitted to be listed on institutional trading platform for a period of five years from the date of such delisting.
Benefits of being listed on ITP:
These benefits are somewhat similar to the benefit of listing on main platform of any stock exchange.
Shareholder are eligible to claim exemption granted u/s 10(38) in case of long term capital gain whereas, short term capital gain is taxed at 15% due to levy of Securities Transaction Tax which is 0.1% at present. Buyback of shares of an unlisted company attract implications of section 115QA r.w. section 10(34A). Whereas, the listed companies are not affected by the provision of section 115QA.
The listing on ITP platform is easy, cost effective, tax beneficial, funding is facilitated and companies can reduce their debt burden by attracting private equity players. Even a private limited company can get itself converted into a limited company and proceed for the listing.
(Author can be reached at 07738770841 /[email protected])