To ease fundraising for companies with stressed assets, market regulator Sebi on Tuesday decided to relax pricing framework under the preferential route and exempted allottees of preferential issues from open offer obligations in such cases with immediate effect. Typically, listed companies having “stressed assets” experience progressive fall in their share price. Further, the disclosures that are made by stressed companies such as their financial results and default in servicing debts also aggravate the fall.
Such firms face certain difficulties in raising capital through the conventional means.
Consequently, Securities and Exchange Board of India (Sebi) has eased the pricing methodology of preferential issues by such firm.
The Office of Finance Minister Nirmala Sitharaman also tweeted: “In order to help stressed firms raise capital while also protecting shareholders’ interests, Sebi has relaxed the pricing methodology for preferential issues by listed companies having stressed assets and has exempted allottees of preferential issues from open offer obligations”.
The new framework is aimed at helping stressed companies raise capital through timely financial intervention at the same time protecting the interest of shareholders.
“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 in a statement.
At present, the determination of the pricing covers a period of 26 weeks or more for frequently traded shares.
It, 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 Sebi takeover regulations.
To be eligible for stressed company criteria, an issuer has to disclose all the defaults relating to the payment of interest, repayment of principal amount on loans from banks or financial institutions and such default should have continued for a period of at least 90 calendar days after occurrence of first such default.
Also, the credit rating of the listed instruments of the company should have been downgraded to “D” and existence of inter-creditor agreement in terms of RBI (Prudential Framework for Resolution of Stressed Assets). To avail this exemption, listed companies need to ensure that the preference issue is made to persons or entities that are not part of the promoter group on the date of the board meeting to consider the preferential issue.
Further, certain other persons including an 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 be ineligible. Also, resolution for the preferential issue at the proposed pricing and exemption from open offer should be approved by the majority of minority shareholders (excluding the promoters, the promoter group and any proposed allottee in the preferential issue that may already hold specified securities in the listed company prior to the preferential issue).
The proposed use of the proceeds of such preferential issue need to be disclosed in the explanatory statement sent for purposes of the shareholder resolution. In addition, an agency needs to be appointed for monitoring use of the proceeds of such a preferential issue.
The shares issued to the investors in such an issue 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.
To give effect to these relaxations, Sebi has amended ICDR (lssue of Capital and Disclosure Requirement) and Takeover Regulations.