The Securities and Exchange Board of India (Sebi) on Wednesday eased the takeover norms and preferential issue requirements for new investors acquiring shares of listed companies in distress under the restructuring schemes of the Reserve Bank of India. The move will make it easier for investors to buy distressed companies from banks and is likely to help resolve the bad loan burden of Indian banks.
According to Sebi Chairman Ajay Tyagi, the regulator has decided to exempt new investors of listed distressed companies from open offer obligations subject to certain conditions such as approval by the shareholders of the companies by a special resolution and a three year lock-in of the shareholding of the new promoters of the firm.
“The special resolution will hopefully take care of the minority shareholders,” said Tyagi.
Earlier, the regulator had granted such exemptions only to banks acquiring the stock of listed distressed companies under strategic debt restructuring (SDR). The new Sebi rules will also be applicable to resolutions approved by the National Company law Tribunal under the Insolvency and Bankruptcy Code, 2016.
“It has been represented to Sebi that where the lenders have acquired shares and propose to divest the same to a new investor, they are facing difficulties as the new investor would need to make a mandatory open offer which would reduce the funds available for investment in the company. Hence, they have requested for exemptions to these investors,” the regulator said in a statement after its board meeting on Wednesday.
Sebi also tightened the norms for issue of participatory notes (P-Notes) by foreign portfolio investors (FPIs). It has levied a regulatory fee of $1,000 on each offshore derivative instrument (ODI) subscriber, which will be collected and deposited by the ODI issuing FPI of such ODI subscriber, once in three years, starting from April 1, 2017.
The Sebi board has also decided to prohibit ODIs from being issued against derivatives, except on those that are used for “peer to peer” hedging purposes.
The Sebi decision has come at a time when the value of foreign investments through participatory notes or offshore derivative instruments (ODIs) has already fallen to a four-month low of about Rs 1.68 lakh crore in April-end. “The idea is to not stop it (P-Notes) all together but to tighten it. We understand that it should not be banned,” said Tyagi.
P-Notes are issued by registered FPIs to overseas investors who wish to be a part of the Indian stock markets without registering themselves directly. They, however, need to go through a proper due diligence process. There have been concerns that P-Notes are allegedly being misused to routing of black money from abroad.
“We recognise that some foreign investors would like to test the market through P-Notes before they decide to get registered in India. But we feel that as a long term measure, who so ever is seriously interested in coming to India should come through the normal FPI route. There is a general concern in opaqueness in that (P-Notes),” said Tyagi.
Tyagi said the regulator has been giving regular updates to the Special Investigation Team (SIT) on black money on its measures to strengthen P-Notes regulatory framework.
The market watchdog also exempted private equity (PE) funds from the one year lock-in requirement in initial public offerings (IPO). Under the current norms, the entire pre-IPO shareholding of PE investors cannot be sold for one year after listing.
According to Sebi, such an exemption will “bring about uniformity, ease of doing business and expand the investor base available for capital raising”.
The regulator said it will finish its probe in 145 cases where the long term capital gains norms have been misused for market manipulation and tax evasion by the end of September.