Sebi reflects on overhaul of preferential attribution rules, Real Estate News, ET RealEstate


NEW DELHI: Sebi on Friday proposed relaxing pricing standards and foreclosure requirements to make it easier for companies to raise funds through preferential allocation of shares. In addition, the regulator proposed to authorize the pledging of the shares allocated to the promoter or to the group of promoters under preferential issuance during the blocking period.

The pricing formula for the allocation of the preferred issue shares should be the Volume Weighted Average Price (VWAP) of weekly highs and lows for 60 trading days or 10 trading days, whichever is greater. the watchdog said in a consultation paper.

Currently, the pricing formula in a preferred allocation is the VWAP of the last two weeks or the last 26 weeks, whichever is greater.

In addition, any preferential issue grant resulting in a change of control should be made on the reasoned recommendation of a committee of independent directors, according to Sebi.

The consultation document also comes in the context of the proposed allocation of preferred shares by PNB Housing Finance to the American Carlyle Group and a handful of other investors facing a roadblock.

Sebi had questioned PNB Housing Finance’s rationale behind setting the issue price, among other aspects, in this deal which was later suspended.

In the wake of the coronavirus pandemic, a temporary price easing was allowed to make a preferential allocation using the 12-week VWAP. Such an easing was applicable for preferential issues made between July 1, 2020 and December 31, 2020.

Sebi said statements have been received that the standard 26-week period is a very long time to determine the price given the volatility of the market.

“In addition, it is argued that there is a significant difference in the price determined on the basis of a 26 week average versus a 2 week average. This may act as a deterrent for existing developers or investors. willing to come to the company’s aid when needed, ”Sebi noted.

For pricing purposes in the case of companies with stressed assets, Sebi recommended replacing the 2-week high and low weekly VWAP average with a 10 trading day VWAP to maintain consistency.

Sebi proposed that the block for preferential issuance to promoters / group of promoters be reduced from 3 years to 18 months and for preferential issuance to persons other than the promoter or group of promoters, the block be reduced by 1 year to 6 months in similar lines with the lock-in applicable to public issues.

The regulator suggested that the securities allocated to the promoter or to entities of the promoter group under preferential issuance and which are blocked should be able to be pledged if the pledge of these securities is one of the sanction terms of the loan granted by a bank.

In addition, the loan should be given to the issuing company or its subsidiaries for the purpose of financing the objects of the preferential issue, Sebi said.

“Any preferential issue grant resulting in a change of control can only be made in accordance with a reasoned recommendation from a committee of independent directors. The recommendation report must take into account all aspects of the preferential grant, including pricing, ”suggested the regulator.

In addition, the committee should disclose the voting method of its meeting.

A similar provision is available in the SAST regulations, for open bid and write-off regulations.

“Any preferential issue allocation resulting in a change of control or the allocation of more than 5 percent of the fully diluted share capital after the issuance of the issuing company to a beneficiary or to beneficiaries acting in concert, requires a report of ‘appraisal from a registered appraiser and considers the said appraisal for awards, ”Sebi said.

The Securities and Exchange Board of India (Sebi) has invited public comment until Dec. 11 on the proposals.

In order to reduce the ineligibility period condition for a person who has sold or transferred equity shares from six months prior to the relevant date to 60 trading days prior to the relevant date, Sebi suggested adding the condition that the he issuing entity will not have unpaid contributions to stock exchanges or custodians.

Regarding the guidelines for preferential issuance for non-cash consideration, it was suggested that only the exchange of shares backed by a valuation report can be considered “non-cash”.


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