Sebi overhauls preferential allotment rules

Capital markets regulator Securities and Exchange Board of India (SEBI) has relaxed several norms related to preferential allotment and pricing, according to a notification on 14 January.

Sebi board had earlier cleared certain changes with respect to valuation in preferential allotment. According to new norms, any preferential issue allotment resulting in a change in control will be required to provide a reasoned recommendation from a committee of independent directors along with their comments on all aspects of preferential issuance, including pricing.

A higher dependence on valuation certificate, approval of committee of independent directors, and the mandate to comply with articles of association comes in the wake of PNB Housing Finance.

This comes against the backdrop of PNB Housing Finance's proposed allotment of preference shares to US-based Carlyle Group and a clutch of other investors hitting a roadblock.

Sebi had questioned PNB Housing Finance's rationale behind the fixing of the issue price, among other aspects, in that deal that was later shelved.

To this effect, the regulator has amended ICDR (Issue of Capital Disclosure Requirements) rules.

For promoters, Sebi said the lock-in requirement for allotment up to 20 per cent of the post issue paid-up capital has been reduced to 18 months from the existing 3 years.

The lock-in requirement for allotment exceeding 20% of the post issue paid-up capital has been cut to 6 months from the existing 1 year.

For non-promoters, the lock-in requirement for allotments shall be reduced from the requirement of 1 year to 6 months, Sebi said.

"Lock-in requirements for an allottee who has become a promoter due to change in control consequent to the preferential issue shall be the same as those applicable to the promoters and promoter group," the notification issued on January 14 noted.

The regulator said promoters have been permitted to pledge the shares locked-in following a preferential issue provided if the pledge of such securities is one of the terms of sanction of the loan granted by a financial institution.

Further, the loan is to be sanctioned to the issuer company or its subsidiaries for financing objects of the preferential issue, Sebi said.

The regulator also said that consideration for a preferential issue, "other than cash" would be permitted only for share swaps backed by a valuation report from an independent registered valuer.  The issuer company will have to necessarily apply for in-principle approval from stock exchanges on the same day as the date of dispatch of notice for AGM or EGM to the shareholder.