The Securities and Exchange Board of India (SEBI) has relaxed the norms for preferential allotment for companies which have stressed belongings, thereby making it easier for such entities to lift funds.
“SEBI has decided to relax the pricing methodology for preferential issues by listed companies having stressed assets and exempt allottees of preferential issues from open offer obligations in such cases, with immediate effect,” the regulator stated in a launch on Tuesday.
The capital markets regulator stated listed entities with stressed belongings could make preferential allotment at a value that’s “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.”
Further, the watchdog has exempted allottees in such issuances from having to make an open supply even when the quantum of acquisition triggers an open supply or there’s a change in management when it comes to Takeover Regulations.
An organization could be eligible to be known as stressed if it has defaulted on its cost obligations for greater than 90 days or if the credit standing companies have downgraded its securities to ‘D’.
An entity, which has an inter-creditor settlement when it comes to Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions 2019, will even be recognized as stressed.
SEBI additionally included sure checks to make sure the relaxations should not misused. The preferential challenge can’t be made to entities which can be a part of the promoter group or these which have been recognized as undischarged bancrupt, wilful defaulter or fugitive financial offender.
The decision for such a preferential allotment and the exemption from an open supply must be handed by nearly all of minority shareholders and the proposed end-use of proceeds of such preferential challenge must be disclosed.
‘Not for loan repayment’
Also, the proceeds can’t be used for compensation of any loans taken from the promoter group/ or group companies.
A 3-year lock-in will even be relevant on the shares allotted in such a preferential allotment.