SEBI eases norms for acquisition of listed companies under stress


Securities and Exchange Board of India (SEBI) eased 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(RBI).

The new rules will be applicable to resolutions approved by the National Company Law Tribunal under the provisions of the Insolvency and Bankruptcy Code, 2016.

Earlier only banks were exempted by the regulator when they acquired stocks of listed distressed companies under the RBI’s Strategic debt restructuring (SDR) scheme

What this move tends to achieve:

  • It will streamline the process and make it easier for investors to buy distressed companies from banks
  • Will help resolve the bad loan burden of Indian banks
  • Earlier lenders used to find it difficult to divest their stake in a distressed firm, as the new investor need to make a mandatory open offer in this regard

Exemptions provided under the new rules:

  • New investors of listed distressed companies will be exempted from open offer obligations, if certain conditions are fulfilled
  • These include approval by shareholders through a special resolution (to safeguard the interest of the minority shareholders) and a three-year lock-in period for the new promoters

SEBI tightens the norms for issue of participatory notes (p-notes) by FPIs:

  • It has levied a regulatory fee of $1,000 on each offshore derivative instrument (ODI) subscribe
  • 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

P-notes and related concerns:

  • p-notes or participatory notes are issued by registered FPI (foreign portfolio investors) to overseas investors (not registered) and wish to invest in the Indian stock markets without registering themselves directly
  • They are allegedly being misused to routing of black money from abroad

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