SEBI redraws securities guidelines

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On 28 August, SEBI amended the SEBI (Disclosure and Investor Protection) Guidelines, 2000.

For public issues, securities which have been acquired by shareholders or promoters during the preceding year, pursuant to a restructuring scheme approved by the high court(s) in lieu of business and invested capital, and which have existed for more than one year prior to the restructuring, will be eligible for inclusion in a promoter’s contribution as well as for an offer for sale. In addition, the timelines for a rights issue at various stages have been reduced in order to facilitate faster completion of issues.

Shares allotted pursuant to the exercise of warrants issued on a preferential basis will be subject to a full lock-in period of one year or three years from the date of allotment. Shares allotted on the exercise of warrants will not be reduced since they have already been locked-in.

The definition of qualified institutional buyers (QIBs) has been amended to exclude a sub-account of a SEBI-registered foreign institutional investor, if it is a foreign corporate or foreign individual account.

Pricing norms for a preferential allotment to QIBs have also been modified. Preferential issues to QIBs will now be made at a price higher than the weekly average of the closing prices of the related shares quoted on a stock exchange two weeks prior to the relevant date.

At present, companies interested in making QIPs are expected to be listed for at least one year. An additional proviso by SEBI states that for the purpose of fulfilling the criterion to make QIPs, companies which have been listed for a year prior to a merger, demerger or arrangement with another company (which has also been listed for more than one year) may take into account the listing history of that company.

SEBI has omitted the definition of “debt instruments” from its guidelines and replaced it with “convertible debt instruments”. Convertible debt instruments have been defined as “an instrument or security which creates or acknowledges indebtedness and is convertible into equity shares at a later date, at or without the option of the holder of the instrument or the security of a body corporate, whether constituting a charge on the assets of the body corporate or not.”

The SEBI (Issue and Listing of Debt Securities) Regulations, 2008, notified on 6 June, applies to the public issue and listing of debt securities issued publicly, or on a private placement basis on a recognized stock exchange.

Draft offer documents with an issue size of up to Rs500 million (as opposed to the earlier limit of Rs200 million) can now be filed with SEBI Regional Offices.

Changes introduced by the amendment to the rights issue timeline are expected to mitigate the market risks to which investors and companies are exposed and will contribute to time-efficient completion. Furthermore, the amendments to the pricing norms for QIPs and the preferential allotment to QIBs will enable listed companies to raise funds from QIBs. However, the amendment to the lock-in requirement of warrants would, to that extent, limit the exit possibilities of warrant holders. Investors with sub-accounts which fall in the categories of “foreign corporate” and “foreign individual” will not be permitted to invest in the primary market with other QIBs.

The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm that provides legal and tax counselling. The authors can be contacted at [email protected] Readers should not act on the basis of this information without seeking professional legal advice.