The Securities and Exchange Board of India (Sebi) relaxed some rules on Wednesday to hasten the resolution of stressed assets in bank balance sheets. The regulator has exempted buyers of shares in distressed companies from the requirement of making an open offer even if the purchase triggers such an event under the takeover code, Sebi announced after its board meeting on Wednesday.
Sebi said it has come across cases where lenders acquired shares in a distressed firm but could not sell the stake to a new investor because the takeover norms proved restrictive and reduced the funds available for investment in the stressed firm.
Last week, RBI identified 12 large accounts where it directed banks to initiate bankruptcy proceedings.
These exemptions, however, will need to be approved by a special resolution (at least 75% shareholders voting in favour). Secondly, the shares bought by the new investor will also be locked in for at least three years.
The regulator said it will grant similar exemptions for those firms which have got their resolution plans approved by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code.
“The new insolvency law allows insolvency professionals a lot of latitude to try different permutations and combinations to unlock the maximum value of a stressed company,” said Sandeep Parekh, founder of law firm Finsec Law Advisors. These would range “from a wipeout of existing equity and issue of new equity to banks to sale of a substantial stake to a strategic investor to a listed spin-off.”
Secondly, the regulator also relaxed laws which will make it easier for private equity-backed firms to raise funds through new share sales. It has exempted category II alternative investment funds (AIFs) such as private equity and real estate funds from the mandatory one-year lock-in of shares when a company they have invested in goes for an initial public offering. Currently, category I AIFs such as venture capital and infrastructure funds are granted that exemption.
A third set of announcements were related to proposals that will allow foreign portfolio investors easier access. The regulator said it was planning to allow more regions to grant FPI registration by including countries that have a diplomatic tie-up with India, among other measures.
Sebi also formalised its proposal (made in a discussion paper in May) to levy a fee of $1,000 on subscribers of offshore derivative investments (which typically involve participatory notes).