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SEBI amends ICDR & SAST regulations regarding: Preferential issue of shares of companies having stressed assets
June 23, 2020Amendment to ICDR Regulations 2018
SEBI has amended the SEBI ICDR Regulations 2018 to insert a new Regulation 164A which provides for the pricing of preferential issue of shares of companies having stressed assets and other conditions of such an issue.
In case of frequently traded shares, the price of the equity shares to be allotted pursuant to the preferential issue shall not be less than the average of the weekly high and low of the volume weighted average price of the related equity shares quoted on a recognised stock exchange during the two weeks preceding the relevant date. However, such allotment shall be made only if the issuer meets any two of the following criteria:
- the issuer has disclosed all the defaults relating to the payment of interest/ repayment of principal amount on loans from banks / financial institutions/ SI- ND NBFC/ Deposit taking NBFCs and /or listed or unlisted debt securities and such payment default is continuing for a period of at least 90 calendar days after the occurrence of such default;
- there is an Inter-creditor agreement in terms of RBI (Prudential Framework for Resolution of Stressed Assets) Directions 2019 dated June 07, 2019;
- the credit rating of the financial instruments (listed or unlisted), credit instruments / borrowings (listed or unlisted) of the listed company has been downgraded to “D”.
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The new Regulation 164A also provides for the various conditions for such preferential issue and exemption from open offer , including :
- the preference issue shall be made to a person not part of the promoter or promoter group as on the date of the board meeting to consider the preferential issue, but not to a wilful defaulter, fugitive economic offender, an undischarged insolvent; a person disqualified to act as a director, among others
- the votes cast by the shareholders in the “public” category in favour of the proposal shall be more than the number of votes cast against it, and, the proposed allottee(s) that already hold specified securities shall not be included in the category of “public” for this purpose;
- the proceeds of such preferential issue shall not be used for any repayment of loans taken from promoters/ promoter group/ group companies;
- the proposed use of proceeds shall be disclosed in the explanatory statement of the shareholder resolution;
- the issuer shall make arrangements for monitoring the use of proceeds of the issue by a public financial institution or by a scheduled commercial bank, which is not a related party to the issuer; and
- the allotment made shall be locked-in for a period of three years from the last date of trading approval.
Amendment to SAST Regulations 2011
In line with the abovementioned amendment to the ICDR Regulations, SEBI has amended the SEBI (SAST) Regulations 2011 to insert a new sub-regulation 2A in Regulation 10 thereof to exempt any acquisition of shares or voting rights or control of the target company by way of preferential issue that is in compliance with the abovementioned regulation 164A of the SEBI (ICDR) Regulations, 2018, from the obligation to make an open offer under Regulation 3(1) and 4 of the SAST Regulations.
This exemption will also apply to the target company with infrequently traded shares which is compliant with the applicable provisions of regulation 164A of the ICDR Regulations, 2018. The pricing of such infrequently traded shares shall be in terms of regulation 165 of the ICDR Regulations, 2018.
To refer to the SEBI (ICDR) (Second Amendment) Regulations, 2020 dated 22 June 2020, click here and to refer to the SEBI (SAST) (Second Amendment) Regulations 2020, dated 22 June 2020, click here.
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