Lawyer Monthly Magazine August 2020 Edition

“ 13 AUG 2020 | WWW.LAWYER-MONTHLY.COM REGULATORY UPDATE OF THE MONTH more equity shares or voting rights in a listed company, and/or (b) control of a listed company. Further, acquisition beyond 5% equity shares or voting rights in a financial year by a person holding 25% or more but less than 75% voting rights attracts the open offer requirement. While several listed companies (especially stressed companies) were looking to raise capital from potential investors so as meet their funding requirements and in some cases, to arrive at a resolution plan with the lenders outside the insolvency and bankruptcy framework, the pricing norms and the mandatory open offer norms were acting as deterrents in the fundraising plans of these listed companies - especially in view of the falling stock prices on account of the economic impact caused by COVID-19. In order to help listed companies tide over the liquidity crisis created by the COVID-19 pandemic, the Securities and Exchange Board of India ( SEBI ) has notified a series of relaxations/reforms. We have, in this article, set out our analysis of various reforms and relaxations announced by SEBI. Increase in creeping acquisition limit for promoters The Takeover Code permits a person holding 25% or more but less than 75% voting rights in a listed company, to acquire an additional 5% voting rights in a financial year without triggering the open offer requirement. Any acquisition beyond 5% in a financial year by such shareholder would trigger the mandatory open offer requirement. In order to encourage promoters to infuse capital in listed companies, SEBI amended the Takeover Code 2 to increase the creeping acquisition limit for promoters from 5% to 10% without making an open offer to the public shareholders. However, additional acquisition (beyond 5% but up to 10%) must be made: (a)during the financial year 2020-21; and (b)by way of preferential allotment of equity shares (and not by way of market purchase). Relaxations for stressed listed companies On 22 June 2020, SEBI notified the much awaited relaxations in the pricing Indian companies, across sectors, are currently facing a serious challenge, in the wake of the COVID-19 pandemic, and require funds to tide over the present economic crisis. While there are various methods for raising capital, preferential allotment has been the most preferred route (especially for listed companies) to raise funds from investors on private arrangement basis as it involves lesser regulatory formalities and helps companies receive investment in a relatively short span of time. However, listed companies are required to comply with, among others, the pricing norms set out under Regulation 164 of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 ( ICDR Regulations ). The manner for determining the issue price for preferential allotment of equity shares of a listed company depends on whether the company’s equity shares are frequently traded 1 or not. In case of a listed company whose shares are frequently traded, the issue price cannot be less than the higher of the average of the weekly high and lows of the volume weighted average prices of the related equity shares during (a) 26 weeks or (b) 2 weeks, preceding the relevant date (being the date 30 days prior to the date on which the meeting of shareholders is held to consider the proposed preferential issue). In addition to the pricing norms, an investor proposing to invest in a listed company has to be mindful of the open offer norms set out under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ( Takeover Code ) which would trigger in the case of the following acquisitions: (a) 25% or Recent Relaxations In The Capital Market Regulations: A Brief Analysis Acquisition beyond 5% equity shares or voting rights in a financial year by a person holding 25% or more but less than 75% voting rights attracts the open offer requirement.