The Sebi board — scheduled to meet on June 25 — will also discuss whether rules on pricing should be relaxed for all companies as per the demands of the industry.
“Both the proposals are currently under consideration. But justification for stressed companies is very clear,” said a person familiar with the development.
Another person familiar with the development said concerns have been raised on relaxations that are only availed of by promoters. “The larger issue is that if you see from an investor protection angle, some section of the market is saying why should Sebi give pricing relaxation only to promoters. The board will take a final call on this,” the person quoted above said.
At present, the pricing rules require the issue price to be the average of the previous 26 weeks or the past two weeks, whichever is higher.
“In tough market conditions, companies struggle to access capital and the 26-week average price becomes a challenge for promoters or non-QIB (qualified institutional buyers) investors. Sebi could consider building in protections such as requiring majority approval of minority shareholders or having a greenshoe type of option provided to all existing investors of the company to participate at the same terms as the promoters for say up to 25 per cent of the funds infused by the promoters,” said Ausang Shukla, managing director at Ambit.
“There could also be eligibility requirements such as compliance with all Listing Obligation and Disclosure Requirements (LODR) and a minimum market cap as a threshold,” Shukla said.
To make the pricing more realistic for stressed companies, Sebi has proposed that pricing be based on the average share price of two weeks preceding the relevant date.
The market regulator received different perspectives on its discussion paper put out in April.
“From the company’s perspective they find the definition of a stressed company stringent and will prefer if the pricing relaxation is also available for companies that are on the verge of stress or which can demonstrate that they are under stress — as majority of the companies are looking to infuse capital,” said Akila Agrawal, partner & head-M&A, Cyril Amarchand Mangaldas.
Sebi had said a listed company would be considered stressed if it discloses default on payment of interest or principal amount on loans from banks or financial institutions, and listed and unlisted debt securities for two consecutive quarters, and when the credit rating of the listed instruments of the firm has been downgraded to ‘D’.
The regulator has also proposed to exempt buyers from making an open offer for acquiring stressed assets. A case has also been made by financial investors to have a substantial holding in the company in order to take control over its operations and guide the company out of stress, it said. However, such acquisition of substantial holding and control triggers open offer obligations of acquiring 26 per cent additional shareholding.
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