By Ruma Dubey
It is really after a very very long time that we can thank SEBI for pushing the markets to hit new highs. In what would have otherwise been another day of listless trading, SEBI’s new diktat on debt ridden companies’ takeover has made the markets celebrate; it is as though it just needed a pretext. These new norms facilitates RBI in its NPA resolution exercise.
A quick look at what the new M&A norms are:
Exempted buyers of shares in distressed/debt-ridden companies from the requirement of making an open offer, even if the purchase triggers such an event under the takeover code.
This exemption has to be approved by a special resolution where at least 75% shareholders vote in favor.
The shares bought by the new investor will also be locked in for at least three years.
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 (IBC).
This is a huge plus as many a deals have not been able to go through just because of the open offer where most of the times, price simply exceeds beyond being viable. Under the existing norms, when an investor acquires 25% of more in a listed company, immediately an open offer has to be made to acquire another 26% from the public shareholders. But under this new norm, debt ridden companies like GVK Power or Videocon or JP Infra or the scores of such companies, the acquiring entity now no longer needs to make an open offer. This facility, as such is already made available to lenders for undertaking restructuring of the company under the Strategic Debt Restructuring (SDR) norms of the Reserve Bank of India. It’s a different issue that no SDR really took off and no new suitor took over despite lack of need for open offer.
This is not the only relaxation which SEBI has announced. There were four more:
1: It has exempted Category II alternative investment funds (AIFs), which is private equity backed companies and real estate funds from the compulsory one-year lock-in of shares when a company they have invested in goes for an IPO.
Currently, this exemption is available to Category I AIFs such as venture capital and infrastructure funds. This is bringing all at the same level, making it very convenient for PE funded companies to go for IPOs – in fact we could see a further rush of IPOs post this exemption.
2: SEBI has mooted the proposal to allow Foreign Portfolio Investors (FPIs) to get registration in more regions by including countries that have a diplomatic tie-up with India.
Simplify broad-based requirements, which now mandates minimum of 20 investors with none of them holding over 49% (if there are institutional investors, this ‘20’ requirement is exempted); it has also mooted relaxing ‘fit and proper’ rules.
3: This one was on Participatory Notes (P-Notes) - to impose a fee of $1,000 on subscribers of offshore derivative investments, which are mainly P-notes.
4: It has allowed hedge funds to trade in the commodity derivatives market, subject to certain safeguards.
The market is thrilled to bits with these norms, especially those on distressed companies and it is celebrating the way it knows best – all the “usual suspects’, the debt ridden companies are amongst the gainers list today - JP Associates, GVK Power, Amtek Auto, Reliance Defence, Unitech, Punj Lloyd, DLF; all are up though Videocon continues to lead the losers list.