SECURITIES LAW
The Securities and Exchange Board of India (“SEBI”) has introduced several relaxations with respect to (i) the pricing for preferential allotment under SEBI (Issue of Capital and Disclosure) Regulations, 2018 (“ICDR Regulations”); and (ii) SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”).
Following are the highlights of the amendments made by SEBI:-
HIGHLIGHTS OF THE AMENDMENTS
1. Companies having stressed assets
(a) ICDR Regulations1 :-
A new pricing method for preferential issue for listed company having stressed assets has been introduced, so as to allow for the price to be based on the average of the weekly high and low of the volume-weighted average price of the respective equity shares during two weeks preceding the relevant date as opposed to, subject to the following conditions:-
(1) The issuer company should meet two out of three criteria to issue securities based on above pricing, which are: (a) disclosures relating to all defaults and such defaults continue for a period of at least 90 days; (b)credit rating of the company is downgraded to a “D” and (c) execution of an inter creditor agreement in terms of the directions laid by the Reserve Bank of India;
(ii) The proceeds from such issue cannot be utilized for any repayment of loans taken from promoters, promoter group or group companies, and the proposed use of the proceeds must be disclosed in the explanatory statement;
(iii) The preferential issue cannot be made to certain persons including persons forming part of promoter or promoter group;
(iv) The votes cast in favour of the preferential allotment from shareholders in the “public” category must exceed the votes cast against it/ be 3 times in excess of votes against it where the company does not have an identifiable “promoter”
(v) The issuer company is required to make arrangements for monitoring the use of the proceeds of the issue by a public financial institution. The Audit Committee too, is required to monitor such utilization;
(vi) The allotment made basis the aforementioned pricing shall be locked-in for a period of three years from the last date of trading approval.
(1) The issuer company should meet two out of three criteria to issue securities based on above pricing, which are: (a) disclosures relating to all defaults and such defaults continue for a period of at least 90 days; (b)credit rating of the company is downgraded to a “D” and (c) execution of an inter creditor agreement in terms of the directions laid by the Reserve Bank of India;
(ii) The proceeds from such issue cannot be utilized for any repayment of loans taken from promoters, promoter group or group companies, and the proposed use of the proceeds must be disclosed in the explanatory statement;
(iii) The preferential issue cannot be made to certain persons including persons forming part of promoter or promoter group;
(iv) The votes cast in favour of the preferential allotment from shareholders in the “public” category must exceed the votes cast against it/ be 3 times in excess of votes against it where the company does not have an identifiable “promoter”
(v) The issuer company is required to make arrangements for monitoring the use of the proceeds of the issue by a public financial institution. The Audit Committee too, is required to monitor such utilization;
(vi) The allotment made basis the aforementioned pricing shall be locked-in for a period of three years from the last date of trading approval.
(b) Takeover Regulations2 :-
Following the aforementioned changes to the ICDR Regulations, SEBI introduced additional exemptions under Takeover Regulations for exempting the requirement of making an open offer under Regulations 3(1)3 and 4 4 of the Takeover Regulations in case of preferential allotments of the nature described above.
