Sebi relaxes pricing norms for preferential issues of listed companies

Experts said the new pricing formula will benefit promoters who want to consolidate their stake
The Securities and Exchange Board of India (Sebi) on Thursday relaxed the pricing norms for preferential issuances to ease the capital-raising process for listed companies.

The new pricing formula will enable the issuance of new shares at recent stock prices. A lot of market participants had approached Sebi, saying the discovered price under the earlier formula was too high and was discouraging promoters and other investors from infusing more capital into the firm.

Sebi, however, has said the shares issued under the new pricing norms will be locked in for three years and the pricing relaxation will be valid for issuances made until December 2020.
The decision was taken at a board meeting in Mumbai on Thursday. Other decisions taken include levy of 10 per cent penalty for delay in open offers, new measures to prevent insider trading, streamlining of the consent mechanism process, and approval of the annual report for 2019-20. The new pricing formula for allotment of shares under preferential issue will be a volume-weighted average of weekly highs and lows for 12 weeks or two weeks — whichever is higher.

“The pricing guidelines previously required the issue price in a preferential allotment to be the average of the last two weeks or the last 26 weeks — whichever was higher. The elimination of the restriction would now require to take the weekly high or low, which, in turn, would enable companies to raise funds through this route, which otherwise was impossible owing to the current market volatility,” said  Sonam Chandwani, managing partner, KS Legal. 

After touching all-time highs in January, the benchmark indi­ces fell as much as 40 per cent before reb­ounding. Curr­ently, the Sensex is down 15 per cent on a year-to-date bas­is.
Sebi has accounted for a substantial correction in share-pricing levels that have occurred in the past few months against the backdrop of the pandemic. This has been a key industry ask for some time and hopefully, now, with its implementation, companies will be able to expeditiously raise funds from investors they so direly need,” said Vaibhav Kakkar, partner, L&L Partners.

Experts said the new pricing formula will benefit promoters who want to consolidate their stake. Also, it will help institutional investors coming in through the qualified institutional placement (QIP) route.

“This will equip companies with possibilities of various combinations, such as a combination of a QIP and promoter investment. However, a lock-in of three years may be seen too long for an investor not in control and not seeking to gain control through this investment,” said Manan Lahoty, partner, IndusLaw.
Yash Ashar, partner and head-capital markets, Cyril Amarchand Mangaldas, said the lock-in will help prevent “abuse by investors”.

Earlier this week, Sebi had relaxed the pricing formula for preferential allotment for stressed companies. Experts said the latest relaxation, coupled with those provided last week, will help address India Inc’s fund-raising concerns.

Last week, Sebi allowed promoters to acquire up to 10 per cent in a financial year through preferential issue of equity shares without triggering the open offer. It also relaxed the mandatory six-month cooling off period between two QIPs to just two weeks.

Experts also welcome Sebi’s move to levy 10 per cent interest in case of delays in the open offer.

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