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Financial markets

Sebi Board to Discuss ESOP Rules and PSU Delisting on June 18

Strategic Insights

— 2 min read

The Securities and Exchange Board of India (Sebi) board is scheduled to meet on June 18 to discuss two significant proposals. First, the regulator is likely to consider allowing startup founders to continue holding employee stock options (ESOPs) even after taking their ventures public. Currently, founders are classified as promoters at the time of filing initial public offering (IPO) documents, which means they cannot receive ESOPs. The proposed changes aim to address the ambiguity in ESOP rules and recognize the "skin in the game" incentive for founders. Additionally, Sebi is considering a one-year cooling-off period between the grant of ESOPs and the company's decision to pursue an IPO. Secondly, the regulator is also likely to discuss allowing public sector companies (PSUs) to voluntarily delist from stock exchanges through a separate carve-out mechanism, provided the government holds more than 90% stake.

Key Takeaways:

  • Sebi is likely to consider allowing startup founders to continue holding ESOPs after taking their ventures public, addressing the ambiguity in ESOP rules.
  • The proposed changes aim to recognize the "skin in the game" incentive for founders, aligning their interests with other shareholders.
  • Sebi is considering a one-year cooling-off period between the grant of ESOPs and the company's decision to pursue an IPO.
  • The regulator believes allowing share-based benefits shortly before IPO filing could be prone to misuse.
  • Sebi is also considering allowing public sector companies (PSUs) to voluntarily delist from stock exchanges through a separate carve-out mechanism.
  • The government must hold more than 90% stake in the PSU for delisting through this mechanism.
  • The regulator notes that certain PSUs have a thin public float and weak financials, which may result in elevated market prices that do not reflect the actual book value.
  • Sebi is proposing that the 60-day volume-weighted average market price be considered for delisting, which would result in a higher floor price and a greater budgetary outlay for the government.

Statistics:

  • 90% stake: The government must hold this percentage in a PSU for it to be eligible for delisting through the proposed mechanism.
  • 60-day volume-weighted average market price: This is the proposed method for determining the floor price for delisting PSUs.
  • One year: Sebi is considering a one-year cooling-off period between the grant of ESOPs and the company's decision to pursue an IPO.

Sources:

  • Reena Zachariah, BOARD MEET ON JUNE 18, Mumbai: [Source not provided, assuming the source is Reena Zachariah's article or organization]
  • Discussion paper released by Sebi last month, as mentioned in the article.

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