Sebi eases pricing framework for preferential issue of shares

Markets regulator Sebi on Thursday decided to temporarily relax pricing framework for preferential allotment of shares as part of efforts to liberalise norms for raising funds amid the coronavirus pandemic.

The watchdog would provide an additional option to the existing pricing methodology for preferential issuances, according to a release issued by Sebi after its board meeting.

In the wake of serious challenges faced by the corporate sector due to COVID-19, Sebi has been receiving representations from various stakeholders for temporarily liberalising regulations relating to raising of capital from the securities market.

In case of frequently traded shares, the price of the equity shares to be allotted pursuant to the preferential issue should not be less than higher of “the average of the weekly high and low of the volume weighted average price of the related equity shares” during the twelve weeks preceding the relevant date.

Further, companies can consider “the average of the weekly high and low of the volume weighted average prices of the related equity shares quoted on a recognised stock exchange during the two weeks preceding the relevant date” for pricing guideline for preferential issue.

According to Sebi, existing pricing guidelines for preferential issue, for frequently traded shares, as prescribed under the ICDR ( Issue of Capital and Disclosure Requirement)Regulations would continue to remain in force.

The issuer would have the option to chose any one of the formulas, as per the release.

The specified securities allotted on preferential basis using the new pricing formula would be locked-in for a period of three years.

“The said option in pricing shall be available for the preferential issues made between July 1, 2020 or date of notification of amendment to the regulations, whichever is later and December 31, 2020,” the release said.

Besides, the watchdog said acquisition of shares by way of stock exchange settlement process through bulk and/or block deals would be permitted during the open offer.

In case of indirect acquisitions where public announcement of an open offer has been made, an amount equivalent to 100 per cent of the consideration payable under the open offer must be deposited two working days before the date of detailed public statement.

The escrow account should be in the form of cash and/ or bank guarantee, the release said.

In case of delays in making open offer attributable to the acts of omission or commission of the acquirer, a simple interest of 10 per cent would be paid to all the shareholders who have tendered the shares in the open offer, Sebi noted.

Yash Ashar, Partner & Head (Capital Markets) at law firm Cyril Amarchand Mangaldas said Sebi board has approved a change in pricing for a preferential allotment by providing an option to see the 12-week formula.

“The additional condition they have added is that those who participate under such revised formula will be locked in for a period of three years. Such change is primarily intended to benefit the promoters of the company as otherwise they would have had to pay a much higher price,” Ashar said.

The additional lock-in period is only for those using the new formula.

“This, we believe, will balance short to medium term requirements for the companies and ensure that there is no abuse by investors. Thus, in addition to a rights issue to maintain shareholding, promoters also will have this additional option,” Ashar noted.