SEBI Board meeting was held on 28th December 2021 wherein the highlights of discussions and decisions were the approval of slew of amendments to tighten norms for Initial Public Offerings based upon the recommendations by Primary Market Advisory Committee (PMAC). Besides, several other important decisions were taken including amendments in preferential allotment pricing guidelines, introduction of Special Situation Fund under Category-I AIF; approving amendments in SEBI Settlement Regulations, etc.
The key decisions taken by SEBI at its Board Meeting are summarized below for quick review and understanding .
- Stricter IPO Norms – Amendments in SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations) and consequential amendments in SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations)
1.1 IPO proceed utilization and Objects of the Issue:
For Companies with object of issue being future inorganic growth without any identified acquisition or investment target, it is now provided that the amount for such objects and amount for General Corporate Purpose (GCP) shall not exceed 35% of the total amount being raised. Further the amount so earmarked for such objects, where the company has not identified acquisition or investment target, shall not exceed 25% of the amount being raised by the issuer. These limits will not apply if proposed acquisition or strategic investment object has been identified and disclosed in the offer documents.
- 2 Capping on offer for sale by selling shareholders:
Shares offered for sale by selling shareholders, individually or with persons acting in concert, holding more than 20% of pre-issue shareholding of the issuer, not to exceed more than 50% of their pre-issue shareholding and for those holding less than 20% not to exceed more than 10% of their pre-issue shareholding.
- 3 Reporting on utilisation of issue proceeds:
Now Credit Rating Agency (CRAs) registered with the Board, shall be permitted to act as Monitoring Agency and monitoring shall continue till 100% instead of 95% utilization of issue proceeds including the amount raised for GCP. Monitoring Agency Report to be placed before audit committee on a quarterly basisinstead of on an annual basis.
- 4 Price Band:
In case of book-built issues, a minimum price band of at least 105% of the floor price shall be applicable on all issues opening on or after the notification of amended regulations in the official gazette.
- 5 Lock-in for Anchor Investors:
The lock-in period for anchor investor has been extended to 90 days for 50% of the portion allocated to anchor investor and for the remaining 50% it shall continue to be 30 days from the date of allotment. The change will come in force for all issues opening on or after April 01, 2022.
- 6 Allocation methodology for Non-Institutional Investors (NIIs) for book-built issues opening on or after April 01, 2022:
1/3rd of the portion available to NIIs reserved for applicants with application size of more than INR 2 Lacs to INR 10 Lacs and remaining 2/3rd to be reserved for applicants with application size of more than INR 10 Lacs. In case of oversubscription, allotment of securities to shall be on “draw of lots” basis.
2. Changes in Valuation/Pricing norms for Preferential Issue – Amendments in ICDR Regulations and LODR Regulations (applicable on issues where relevant date is after the notification in the official gazette):
2.1 Determining the floor price:
As per the amended norms, the floor price for preferential issue of frequently traded securities shall be now higher of 90/10 trading days’ volume weighted average price (VWAP) of the scrip preceding the relevant date or as per any stricter provision in the Article of Association of the issuer company.
In addition to aforesaid, Valuation Report by an independent Registered Valuer shall also be needed for determination of floor price in case of any change in control, or allotment of more than 5% of post issue fully diluted share capital of the issuer company to an allottee or to allottees acting in concert.
For infrequently traded security, the Valuation Report by an independent Registered Valuer shall be required.
Further, in case of change in control, a committee of independent directors shall be required to provide a reasoned recommendation along with their comments on all aspects of preferential issuance including pricing. The voting pattern of the committee shall also be disclosed to shareholders/public.
2.2 Lock-in Provisions for preferential issue and Pledge of lock-in securities:
Promoters lock-in requirement for allotment of upto 20% of the post issue paid up capital is reduced to 18 months from the existing 3 years and for allotment exceeding 20% of the post issue paid up capital it is reduced to 6 months from the existing 1 year.
For Non-promoters, the lock-in requirement for allotments is reduced from requirement of 1 year to 6 months.
As per the amendment approved, Promoters will be permitted to pledge the securities locked-in, provided if pledge of such specified securities is one of the terms of sanction of the loan granted by financial institutions and the said loan is to be sanctioned to the issuer company or its subsidiary(ies) for the purpose of financing one or more of the objects of the preferential issue.
2.3 Preferential Issue for consideration other than cash:
Consideration for preferential issue, “other than cash” will only be permitted for share swaps backed by a Valuation Report from an Independent Registered Valuer.
2.4 Timelines for seeking in-principle approval from stock exchanges by issuer company:
It is now required that Issuer company shall necessarily apply for in-principle approval from stock exchanges on the same day as the date of dispatch of notice for AGM/ EGM to shareholders.
3. Introduction of Special Situation Funds: Amendment to SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations)
3.1 Amendment in AIF Regulations, introducing Special Situation Funds, a Category-I AIF for investment in only ‘stressed assets’ such as:
Acquisition of Stressed loans in terms of RBI (Transfer of Loan Exposures) Directions, 2021 or as part of a resolution plan approved under Insolvency and Bankruptcy Code, 2016;
Security receipts issued by Asset Reconstruction Companies;
Securities of companies in distress;
Any other asset/security as may be prescribed by the Board from time to time
3.2 Other key regulatory requirements for Special Situation Funds:
Exempted from investment concentration norm in a single investee company;
No restriction on investing investible funds in unlisted or listed securities of the investee company
Minimum investment by an investor to be INR 10 Crore and INR 5 crore in case of an accredited investor;
Minimum corpus of INR 100 crore;
Initial and continuous due diligence requirements mandated by RBI for ARCs’ investors shall also be applicable to SSFs while acquiring stressed loans in terms of RBI (Transfer of Loan Exposures) Directions, 2021.
4. Amendments to the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018
4.1 Time-period for filing a settlement application is now increased to 60 days from the date of receipt of the show cause notice or a supplementary notice, whichever is later and time-period for submission of Revised Settlement Terms Form, after the Internal Committee (IC), is increased to 15 days from the date of the IC meeting.
4.2 All payments under the Settlement Regulations to be accepted only through the dedicated payment gateway
4.3 Changes are to be made bringing clarification in certain provisions relating to the condition precedent for settlement, non-monetary terms, provisions relating to irregularity in procedure, settlement scheme and legal costs, in the settlement process.
4.4 The Proceeding Conversion Factor (PCF), the Base Values (BV), the amounts in respect of disclosure violations (in Tables VII and VIII along with the Notes therein), settlement terms attributable to the nature and extent of violations (in Table X along with the Notes therein) to be rationalised in the amended Regulations.
4.5 Separate guidelines dealing with the procedure to be adopted for arriving at suitable terms pursuant to filing of a compounding application are to be issued.
- 5. Other Amendments
5.1 Amendment in SEBI (Mutual Funds) Regulations, 1996 (MF Regulations)
Mutual Funds schemes are now mandated to follow Indian Accounting Standard (IND AS) from Financial Year 2023-24 onwards.
In case of decision of majority of the Trustees to wind up a scheme or prematurely redeem the units of a close ended scheme, the Trustee will require to obtain the consent of the unitholders by simple majority of the unitholders present and voting on the basis of one vote per unit held and publish the results of voting within 45 days of the publication of notice of circumstances leading to winding up. In case consent is not received, the scheme shall open for business activities from the second business day after publication of results of voting.
5.2 Amendments to SEBI (Foreign Portfolio Investors) Regulations, 2019
Now, a unique registration numbers of FPIs will be generated by SEBI on receiving the basic details of the applicants seeking FPI registration from either of SEBI registered Depositories.
5.3 Amendment in SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR)
As per the amendment, appointment or re-appointment of persons who fail to get elected by the shareholders at a general meeting as directors, including as Whole-time directors or Managing Directors or Managers, at the general meeting of a listed entity, shall be done only with the prior approval of the shareholders.
the proposal for issuance of securities in dematerialized form in case of investor requests for issue of duplicate shares etc. was also approved in the Board Meeting.
5.4 Review of the role of KYC Registration Agencies (KRAs) and amendment to SEBI {KYC (Know Your Client) Registration Agency} Regulations, 2011
As per the amendment, KRAs will responsible to carry out independent validation of the KYC records uploaded onto their system by the Registered Intermediary (RI) and to maintain an audit trail of the upload / modification / download w.r.t. KYC records of client.
It is prescribed that the systems of the RIs and KRAs should be integrated to facilitate seamless movement of KYC documents to and from RIs to KRAs.
5.5 Amendment are also made in SEBI (Stock Brokers) Regulations, 1992 and SEBI (Depositories and Participants) Regulations, 2018 to provide for revised Networth requirement for Trading Members (TMs), Self-Clearing Members (SCMs), Clearing Members (CMs), Professional Clearing Members (PCMs), Depository Participants (DPs) and Deposit & Fees requirement for members in Electronic Gold Receipt (EGR) segment amongst others.