SEBI relaxes pricing methodology for preferential issues by stressed firms

Finance Minister Nirmala Sitharaman on June 23 said that the market regulator Securities and Exchange Board of India (SEBI) has relaxed the pricing methodology for preferential issues by listed companies having stressed assets in order to help them raise capital. According to her, the enabling provision also protects shareholders’ interests, as it exempts allottees from open offer obligations.

According to the Finance Minister, “In order to help stressed firms raise capital while also protecting shareholders’ interests, SEBI has relaxed the pricing methodology for preferential issues by listed companies having stressed assets and has exempted allottees of preferential issues from open offer obligations.”

Accordingly, eligible listed companies having stressed assets will be able to determine pricing of their preferential allotments at 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.

“Allottees of preferential issue in such eligible companies will be exempted from making an open offer if the acquisition is beyond the prescribed threshold or if the open offer is warranted due to change in control, in terms of takeover regulations,” SEBI said in a statement.

As per the statement, the preferential issue will be made to persons or entities that are not part of the promoter or promoter group.

“Proposed end-use of proceeds of such preferential issue will be disclosed. The proceeds should not be used for any repayment of loans taken from promoters or promoter group or group companies,” the statement said.

“Monitoring agency will be appointed for monitoring end-use of the proceeds of such a preferential issue. The monitoring agency shall not be an associate to the company. The Audit Committee shall also monitor the proceeds of such a preferential issue.”

In addition, SEBI said that shares issued to the investors in such an issue shall be locked in for a period of three years from the latest date of trading approval granted by all the stock exchanges where the specified securities are listed.