Sebi’s sensible move on promoter stake

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It is welcome that capital markets regulator Securities and Exchange Board of India (Sebi) has eased fund-raising norms for listed companies, amidst the Covid pandemic and resultant uncertainty. It has relaxed norms for qualified institutional placements (QIP), a rather popular route to raise fresh capital from institutional investors. The mandatory cooling-off period of six months between two QIPs has been reduced to two weeks.

Further, Sebi has amended its takeover code for the financial year 2020-21, to allow promoters to raise their stakes by up to 10% without triggering an open offer. The idea, of course, is to ward off the threat of takeover in a scenario of depressed share prices. As per the code, when a person, along with those acting in concert, acquires 25% or more of voting rights, they are under obligation to make an open offer to acquire another 26%. Creeping acquisitions are allowed without inviting open offer; but those who already hold above 25% are obliged to make an open offer on acquiring 5% or more in a financial year. The 5% annual limit has now been raised to 10%, but only for promoters.

Further, Sebi has mandated that the acquisition can only be done via the preferential issue of equity shares, so as to make promoters infuse fresh capital into their companies, and not simply acquire shares from the secondary market. The pricing norms for preferential allotments have not changed, so Sebi has rightly encouraged promoters to raise stakes at attractive valuations. The idea is to enable promoters to push funds into their companies to tide over Covid-19, and also boost fund-raising. The reduced QIP timeline means less regulatory intervention, better scope for deleveraging liabilities and improved access to investors. All these are welcome.

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