Fundraising for stressed firms gets easier; SEBI tweaks pricing norms for share issues, with riders

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Published: June 23, 2020 6:51 PM

Capital markets regulator SEBI today relaxed the pricing methodology for preferential issue of equity shares to make it easier for listed companies with stressed assets to raise funds in the market.

In March 2018, Sebi said the four PSUs would have to comply with the rules, but it did not enforce this and, instead, gave an extension for a year.The relaxation from the market regulator comes with certain riders, which will force the companies to not make preferential issues to any member of the promoter group or the promoter of the company.

Capital markets regulator SEBI today relaxed the pricing methodology for preferential issue of equity shares to make it easier for listed companies with stressed assets to raise funds in the market. Securities and Exchange Board of India, while extending this option for stressed listed firms, also exempted allottees of preferential issues from open offer obligations in such cases. However, the relaxation from the market regulator comes with certain riders, which will force the companies to not make preferential issues to any member of the promoter group or the promoter of the company.

“Eligible listed companies having stressed assets will 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,” SEBI said. It added that the allottees of such preferential issue 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. Currently, the rules mandated that the pricing of a preferential allotment can not be less than the average weekly high and low of 26 weeks.

To be eligible for such relaxations, listed companies need to have made a disclosure of defaults on payment of interest or repayment of principal amount on loans from banks or non-bank lenders or even listed or unlisted debt securities. For a company to be eligible such default shall have continued for a period of at least 90 calendar days after the occurrence of the default. In case a listed firm has recently faced a downgrade of the credit rating of the financial instruments, credit instruments, or borrowings to D, then that would also qualify as a stressed company.  SEBI has also said that the existence of an inter-creditor agreement in terms of Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions 2019, shall also make a firm eligible. Stressed firms will have to satisfy two of the three eligibility norms. 

Further the capital market regulator said that the preferential  issue should not be made to wilful defaulters, fugitive economic offenders or those who have been prohibited by SEBI from trading in securities and accessing the securities market. The shares issued in such an issue, SEBI said, shall be locked in for a period of three years from the latest date of trading approval granted by all the stock exchanges where the specified securities are listed.

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