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Sebi relaxes preferential allotment norms for fund raising amid COVID outbreak

Moneycontrol |
Nitesh Mehta, Partner
M&A Tax and Regulatory

17 June 2020

The market regulator relaxed preferential allotment norms for promoters till March 2021.

Capital market regulator Securities and Exchange Board of India (Sebi) on June 17 relaxed the preferential allotment norms which can help the companies to raise funds faster from promoters.

The move comes at a time when a lot of companies are in need of funds to start operations following the countrywide lockdown that last for over two months.

The Sebi has allowed promoters to increase their stake in the company by up to 10 percent through preferential allotment, against the limit of 5 percent earlier. The market regulator relaxed preferential allotment norms for promoters till March 2021.

"SEBI has now permitted promoters to acquire a further stake in listed companies through preferential allotment of up to 10 percent (as against 5 percent) during FY 2020-21 without triggering open offer. Further, the cooling-off period between two QIPs have been reduced to two weeks as against six months. These measures along with relaxation regarding rights issues permitted earlier are aimed at increasing liquidity for Indian companies," Nitesh Mehta, Partner / Transaction Tax, Tax & Regulatory Services, BDO India told Moneycontrol.

"At the same time, relaxation from takeover code could be a good opportunity for promoters who are looking at increasing their stake at attractive valuations, given the current market sentiments," he said.

"Sebi's relaxations are a welcome move, Relaxing preferential allotments norms will help promoters have more strategic investors on board. With most companies operating at skeletal staff counts, removing timeline restrictions and voluntary open offer Norms should help as well," said Nikhil Kamath, Co-Founder & CIO, Zerodha & True Beacon.

A preferential issue is a type of issue where shares or convertible securities are allotted by listed companies to a select group of people under Section 81 of the Companies Act, 1956. This is neither a rights issue nor a public issue. It is also considered a faster way for companies to raise equity capital.

The Sebi also relaxed voluntary open offer norms and removed timeline restriction and restriction on voluntary open offer if shares purchased within 52 weeks.