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SEBI relaxes pricing guidelines and open offer obligations for preferential issues by companies having stressed assets

01 Jul 2020

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SEBI has amended its ICDR Regulations in relation to pricing of preferential issues by companies having stressed assets. Consequent amendments have also been made to the Takeover Code exempting such issues from the open offer requirements under the Code.
  • IntroductionSecurities and Exchange Board of India (SEBI) has introduced amendments to the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations) and the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Code) on 22 June 2020. The amendments aim to provide a mechanism to identify companies which have stressed assets, determine the pricing for preferential issues by such companies and provide related exemption from open offer requirements under the Takeover Code for such preferential issues.
  • BackgroundOn 22 April 2020, SEBI had issued a consultation paper in connection with pricing of preferential issues by companies having stressed assets and an exemption from making an open offer for acquisitions in such companies. It had observed that companies having stressed assets face difficulty in accessing capital markets and experience steep fall in their share prices. A lack of capital at this stage may prove detrimental to the operations of the company.

    SEBI identified that the prevailing pricing norms were hindering access to capital for these companies because the price in the preferential issue was to be calculated over a 26-week period. For a company in deteriorating financial condition and falling share prices, this led to a wide gap between the price at the beginning of such period and at the time funds were proposed to be raised. The price at the beginning of the 26-week period would invariably be higher, consequently making it more expensive for any potential investor to participate in a preferential issue by a company having stressed assets.

    Accordingly, SEBI proposed certain changes in the pricing framework for companies with stressed assets to make it easier for such companies to access capital markets and invited public comments to such proposed changes. Considering the comments received, SEBI has now introduced a new regulation 164A (Regulation) in the ICDR Regulations for pricing of preferential issues by companies having stressed assets (Stressed Issuer) and consequent amendments to the Takeover Code to exempt such preferential issues.

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