Sebi relaxation: Stressed firms can raise funds on easier terms

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Published: June 24, 2020 4:15 AM

The funds raised cannot be used to repay loans taken from promoters/promoter group/ group companies and the resolution for the preferential issue and exemption from the open offer needs to be approved by the majority of minority.

The regulator has defined a “stressed” company and any company wanting to opt for the easier terms must meet two of three conditions.The regulator has defined a “stressed” company and any company wanting to opt for the easier terms must meet two of three conditions.

The Securities and Exchange Board of India (Sebi) on Tuesday made it easier for listed stressed companies to raise capital from non-promoters via preferential issuances. Eligible firms can price the shares at not less than the average of weekly highs and lows of the volume weighted average prices in the two weeks preceding the allotment; earlier prices over 26 weeks were considered.

Also, the buyers of the shares will be exempt from making an open offer even if the takeover code is triggered either due to their stake crossing the prescribed threshold or a change in control Promoters, other wilful defaulters or fugitive economic offenders cannot buy the shares.

The funds raised cannot be used to repay loans taken from promoters/promoter group/ group companies and the resolution for the preferential issue and exemption from the open offer needs to be approved by the majority of minority.

The regulator has defined a “stressed” company and any company wanting to opt for the easier terms must meet two of three conditions. First, it should have disclosed to the exchanges that it has defaulted on its debt obligation and the default has continued for at least 90.

Next, an inter-creditor agreement has to be in place under the Reserve Bank of India’s June 7, 2019, circular and finally, a company’s credit instruments or borrowings should have been rated ‘D’ by a rating agency. Bankers say at least 50 inter-creditor agreements have been signed since June 2019.The markets regulator said the new framework was aimed at “helping stressed companies raise capital through timely financial intervention, at the same time protecting the interest of shareholders”.

Moin Ladha, Partner, Khaitan & Co (Corporate and Commercial, Regulatory Practice), is of the view that the eligibility for availing pricing relaxation should be widened so that companies which could potentially default are also able to take advantage. Ladha adds: “While there is a requirement to obtain an auditor’s certificate and audit committee confirmation, ongoing compliance and monitoring of end use through the agency will be a challenge.”

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