Reverse-flipping and startup IPOs get boost as Sebi relaxes norms

Business Standard

18-06-2025

The Securities and Exchange Board of India (Sebi) on Wednesday announced a slew of measures to ease the compliance burden in the stock markets ecosystem, encourage more companies to list on the bourses after reverse flipping to India, and facilitate greater foreign fund flows into government bonds.
The market watchdog also decided to drop the norm that makes start-up founders and promoters ineligible to hold Employee Stock Options (ESOPs) and other share-based benefits at the time of filing their draft red herring prospectus (DRHP) for a public issue of shares. Sebi has allowed promoters to hold on to their ESOPs granted a year prior to the filing of their DRHP, while disallowing fresh ESOP issuances in the run up to the filing.
At its meeting steered by chairman Tuhin Kanta Pandey, the Board also scrapped a rule that requires investors in fully paid up Compulsorily Convertible Securities (CCS) to hold shares arising from conversion of such securities for a minimum of one year. 'This has resulted in certain investors not being able to participate in the Offer for Sale in public issue,' the Board noted.
These changes in regulations will assist companies contemplating reverse flipping — a term used for changing a firm's domicile from a foreign nation to India to facilitate domestic listing. Further, Sebi also allowed shares held by foreign ventures, alternative investment funds (AIFs) and public financial institutions to be factored into the minimum promoter contribution requirement for a public issue.
Though clearing corporations were not officially on the board's agenda, Sebi chairman Pandey said the regulator has formed a working group to look into unbundling of charges by clearing corporations. Sebi chairman said that such charges cannot be a 'black-box' and need to be disclosed to the investors. He added that the ownership structure of clearing corporations will not change — a deviation from the past stance whereby the regulator had contemplated hiving them off from parent exchanges.
Sebi has also eased the rules for delisting of public sector undertakings (PSUs) where government shareholding is over 90 per cent. Pandey said the relaxation will not be applicable to banks, NBFCs and insurance companies, and will benefit about five listed PSUs.
The market regulator also announced a separate category for foreign portfolio investors (FPIs) for investing in government securities (gsecs). Such investors will have relaxed regulations on KYC, similar to that by RBI. These FPIs will also secure relief from making granular disclosures and get a longer timeline to disclose material changes.
Further, Sebi also allowed Category-I and -II AIFs to form co-investment vehicles, approved changes in norms governing angel funds, and has initiated discussions on easing accreditation.
The board also pulled back from its December 2024 decision, requiring regulated entities like merchant bankers to hive off non-core or non-regulated business into separate entities. Merchant bankers will be able to continue activities which are under other financial regulators. However, merchant bankers will have to disclose to the clients if the said activity, such as in an unlisted market, is unregulated.
The Sebi board has also cleared a settlement scheme for brokers charged under the scam involving the National Spot Exchange (NSEL). Additionally, a settlement scheme for venture capital funds has also been introduced.
Further, the market regulator has mandated dematerialisation of shares of certain key shareholders such as senior management before the filing of the DRHP.