SEBI makes raising funds easier for stressed companies
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SEBI also decided to grant exemption for allottees of preferential issues from open offer obligations in such cases, with immediate effect.
The regulator in its release said this framework is aimed at helping stressed companies raise capital through timely financial intervention, at the same time protecting the interest of shareholders.
The relaxations introduced are expected to make fund raising through preferential allotments relatively easier for stressed companies, it added.
While relaxing the pricing norms for preferential allotments, the regulator said eligible listed companies having stressed assets would be able to determine pricing of their preferential allotments at not less than the average of the weekly high and low of the volume weighted average prices of the related equity shares during the two weeks preceding the relevant date.
As per earlier framework, the period of 26 weeks or more was compulsory to decide pricing for frequently traded shares. With this new framework under Regulation 164, stressed companies can raise funds through preferential issue even if there is sharp erosion in stock prices in the recent period.
SEBI further said that allottees of preferential issue in such eligible companies will be exempted from making an open offer if the acquisition is beyond the prescribed threshold or if the open offer is warranted due to change in control, in terms of takeover regulations.
In the previous takeover regulations, there was a compulsion on the acquirer that he has to come out with an open offer to acquire the holding of shareholders who want to exit the company after the change in management.
But to be eligible for above relaxations, a listed company has to clear any two out of three conditions to prove itself as a stressed entity.
One is that the listed company should have made disclosure of defaults on 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 after the occurrence of such default.
Second eligibility criteria is that the inter-creditor agreement must exist as per the Reserve Bank of India's June 7, 2019 circular for Prudential Framework for Resolution of Stressed Assets.
Third, the credit rating of financial instruments (listed or unlisted), credit instruments / borrowings (listed or unlisted) of the company should be downgraded to D.
SEBI also clarified that the preferential allotment will be made to persons/entities that are not part of the promoter or promoter group. Any undischarged insolvent, Wilful defaulter, Fugitive economic offender, those disqualified to act as director, prohibited by SEBI from trading in securities and accessing the securities market will also not be eligible.
The proceeds from such allotment should not be used for any repayment of loans taken from promoters and promoter group, and group entities.
SEBI said a monitoring agency should be appointed for monitoring the end-use of proceeds of such a preferential issue and the Audit Committee can also monitor the proceeds. "The monitoring agency should not be an associate to the company."
To protect the minority as well as new investors, the regulator has mandated that the shares issued under this new regulation will be locked in for a period of three years from the latest date of trading approval granted by all the stock exchanges. #casansaar (Source - The Hindu, MoneyControl)
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