Capital market regulator Securities and Exchange Board of India (Sebi) is again extending a helping hand to the government and the Reserve Bank of India
(RBI) in their fight against bad loans.
According to reports, Sebi
is planning to ease the acquisition rules to allow investors to buy distressed assets from banks.
Sebi is set to come up with an easy pricing formula for an open offer to public shareholders and lock-in requirements for acquirers of distressed companies, according to an Economic Times report. At present, such relaxations are given only to banks.
This is not the first time that Sebi has pitched in to help tackle the problem of Rs 6-lakh-crore stressed assets that banks are saddled with. It recently made several relaxations to the securities regulations to allow a more efficient corporate debt restructuring.
Here is a look at some of the recent rule relaxations:
Easier preferential allotments norms
In April, Sebi
gave banks a leeway from its six-month lock-in requirement on shares
acquired through preferential allotment. It also removed the condition that rendered a lender ineligible if it had bought shares
of a company in the past six months.
Often, the debt restructuring exercise involves converting debt into equity or issue of fresh equity to lenders. This is done through preferential issues. As a result, the lock-in requirement and eligibility norms delayed the process earlier.
“Many banks have to frequently sell shares
of stressed companies. This makes them ineligible for future allotment of shares
for a period of six months. The relaxations planned are designed to help banks in speedy recovery from a listed borrower,” a regulatory official said.
Crackdown on wilful defaulters
In 2016, Sebi
barred those named wilful defaulters from raising public funds through stocks and bonds, and also from taking board positions at listed companies.
In a notification, Sebi
said, “An issuer cannot make any public issues, debt or non-convertible redeemable preference shares
if the company or its promoters or directors figure on the list of wilful defaulters”.
The regulator said that no wilful defaulter shall make a public announcement of an open offer
for acquiring shares.
It also barred them from entering into any transaction that would attract the obligation to make a public announcement of an open offer.
The move saw several individuals, including Vijay Mallya, tagged wilful defaulters by banks getting disqualified from holding board positions.
The relaxations mentioned earlier were first given to banks in 2015. However, Sebi
said that the open offer
pricing formula will not be applicable “in cases of conversion of debt into equity of listed borrower companies in distress by the lending institutions.”
The regulator said that the pricing will now be as per “a fair price formula” and the price will not be less than the face value.
As per Sebi
guidelines, the open offer
price has to be higher than the average weekly high and low of the closing price during six months preceding the allotment.
The price also needs to be higher than the average of weekly high or low of the closing prices during the preceding two weeks.
The price derived from this formula has often thwarted lenders’ efforts to recast debt of defaulting borrowers. For instance, in 2011, lenders to Kingfisher Airlines
had to convert debt amounting to Rs 1,400 crore into equity at a 60 per cent premium to the prevailing market rate back then.
The conversion price as per Sebi
formula worked out to Rs 64.5 even as shares
of Kingfisher Airlines
were trading at Rs 40 per share in the secondary market during the time of conversion.
At the time, Sebi
said it would provide further relaxations if debt-to-equity conversions are undertaken as part of the proposed Strategic Debt Restructuring (SDR) scheme of RBI.