The Securities and Exchange Board of India (Sebi) has allowed promoters more space to raise funds via a Follow-on Public Offer (FPO) and has also taken steps to limit price manipulation when companies are relisted after undergoing bankruptcy proceedings.
The regulator, in its December 16 board meeting, approved recalibration of minimum public shareholding norms for companies going through Corporate Insolvency Resolution Process (CIRP), and also doing away with the applicability of minimum promoters’ contribution and subsequent lock-in requirements for follow-on public offer.
Sebi has stipulated that companies getting out of CIRP and wanting to relist will have to achieve 5 percent Minimum Public Shareholding (MPS) at the time of relisting. Such companies will have to achieve 10 percent MPS within 12 months and 25 percent MPS within 3 years of relisting.
What comes as a relief for incoming promoters is that there won’t be any lock-in for their shareholding, and they will be able to contribute towards achieving the prescribed 10 percent MPS within 12 months.
Sonam Chandwani, Managing Partner at KS Legal & Associates, said, "As investors suffer huge losses at the time of relisting, a deliberation on the threshold for minimum shareholding norms of companies, undergoing CIRP and wanting to relist their shares, was necessary. However, due to the three options proposed by SEBI in new shareholding norms for companies under CIRP, the public shareholding in the companies may drop to low levels. Lower shareholding raises concerns regarding failure of fair discovery of the price of the scrip."
The companies will have to fulfil certain conditions for the FPO, namely, equity shares of the issuer are frequently traded on a stock exchange for a period of at least three years, the issuer has been in compliance with the LODR for at least three years, and the issuer has redressed at least 95 percent of the complaints received from the investors.
The board also approved amendment to its rules regarding Investment Advisors (IAs) and also the modification to the structure of fees payable by IAs, while ensuring that the total cost borne by IAs towards fees remains the same as that payable under the present regulations.
The regulator has also given certain exemptions to Alternative Investment Funds (AIFs) in respect of Investment Committee members, conditional upon capital commitment of at least Rs 70 Crore from each investor accompanied by a suitable waiver.The board did not take a decision on T+1 settlement process for capital markets, which was also the agenda.