Short-term relief: Easier norms for firms to raise funds

This is because the Fema rules link pricing to Sebi regulations for listed companies,” Ladha said.

The Securities and Exchange Board of India (Sebi) on Thursday eased norms for companies to raise capital via preferential issuances, albeit temporarily, till December 31.

At a board meeting, the regulator allowed companies to acquire shares via bulk and/or block deals, during open offers, and also amended the regulations relating to insider trading.

Companies can now price the shares at not less than the average of the weekly high and low of the volume weighted average price during the 12 weeks preceding or the two weeks preceding the relevant date, whichever is higher. The shares allotted using the new pricing formula will be locked in for a period of three years. They are free to choose between the new and existing guidelines.

Moin Ladha – partner, Khaitan & Co, said the shorter look-back period addresses the price fluctuation, given the Covid-19 pandemic and the lockdown. “However, the price has adjusted over a period of time and 12 weeks is still a longer look back — especially, when this comes with an additional lock-in condition for a three year period. Also, since both the pricing guidelines will remain in force, it is unclear if this revised formula is available for foreign investors.

This is because the Fema rules link pricing to Sebi regulations for listed companies,” Ladha said.

Yash Ashar, partner & head – capital markets at Cyril Amarchand Mangaldas, said the change is primarily intended to benefit promoters who otherwise would have had to pay a much higher price. “Investors who are not in the nature of FPIs may also benefit from this. Very interestingly, Sebi has imposed this additional lock-in on such subscribers under this formula. This, we believe, will balance short- to medium-term requirements for the companies and ensure that there is no abuse by investors,” Ashar said.

Sebi has also permitted acquisition of shares through the stock exchange settlement process via bulk and/or block deals during an open offer. “In case of indirect acquisitions where public announcement of an open offer has been made, an amount equivalent to 100% of the consideration payable under the open offer must be deposited two working days before the date of detailed public statement. The escrow account shall be in the form of cash and/ or bank guarantee,” Sebi said.

The markets regulator has also approved amendments to the prohibition of insider trading regulations. The amendments include maintaining a structured digital database containing nature of unpublished price sensitive information and the names of persons who have shared the information; automation of process of filing disclosures to stock exchanges, and restriction on trading window not to be made applicable for transactions as prescribed by Sebi. Entities will have to file the non-compliances of Code of Conduct with the stock exchanges and amounts collected for such non-compliances will have to be credited to Investor Protection Education Fund administered by the Board under the Sebi Act.