homeeconomy NewsSEBI offers relief to stressed companies, eases preferential allotment and open offer exemption rules
SEBI offers relief to stressed companies, eases preferential allotment and open offer exemption rules
The market regulator has eased preferential allotment rules for fund-raising by stressed companies, and also granted eligible companies exemption from making an open offer.
The market regulator has eased preferential allotment rules for fund-raising by stressed companies, and also granted eligible companies exemption from making an open offer.
In a late-night notification, the Securities and Exchange Board of India (SEBI) said that listed companies that meet the eligibility criteria will be allowed relaxations in raising funds via the preferential allotment route, under the newly inserted Regulation 164.
Pricing norms have been relaxed for stressed companies. “The price of the equity shares to be allotted pursuant to the preferential issue shall not be less than the average of the weekly high and low of the volume-weighted average price of the related equity shares quoted on a recognised stock exchange during the two weeks preceding the relevant date,” SEBI said.
While the existing framework mandates a period of twenty-six weeks or more to determine pricing for frequently traded shares, the relaxed rules will help prevent value erosion by reducing the latency period.
Put simply, companies now raise funds through the preferential allotment route even if their share price has fallen sharply over the recent period.
Further, SEBI said in a separate notification that any acquisition of shares or voting rights or control of the target company by way of preferential issue under the new regulation will also be exempt from the obligation to make an open offer.
Under SEBI's current takeover rules, an acquirer of a company has to compulsorily come out with an open offer to buy out shareholders who intend to exit the company following the management change.
SEBI has said that companies would have to meet two of the three criteria laid down to be eligible under Regulation 164.
One, the issuer should have disclosed all the defaults relating to the payment of interest/ repayment of principal amount on loans, and such payment default should be continuing for a period of at least 90 calendar days.
Two, an Inter-creditor agreement must be in place under RBI’s June 7, 2019 circular for Prudential Framework for Resolution of Stressed Assets.
Three, the credit rating of the financial instruments (listed or unlisted), credit instruments/borrowings (listed or unlisted) of the company should have been downgraded to “D”.
The preferential allotment cannot be made to the promoter or promoter group, SEBI clarified. Any undischarged insolvents, wilful defaulters, fugitive economic offenders and the like will also not be eligible.
The proceeds from such an allotment cannot be used to repay any loans taken by the promoter or promoter group, and the purpose of its use would have to be disclosed in the explanatory statement sent for the purpose of the shareholder resolution.
To ensure minority investors are protected and the new investors also have skin in the game, SEBI has mandated that the allotment made under this regulation will be locked-in for a period of three years from the last date of trading approval.
First Published: Jun 23, 2020 11:43 AM IST
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