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Sebi tweaks in takeover norms to help promoters raise holding

The Economic Times |
Nitesh Mehta, Partner
M&A Tax and Regulatory

18 June 2020

Sebi has also reduced the gap between two QIPs to two weeks.

The Securities and Exchange Board of India (Sebi) has allowed promoters to acquire 10% instead of 5% through creeping acquisition without triggering an open offer.

The regulator has given this exemption under the takeover code to promoters for this financial year to enable fund infusion into companies that require liquidity.

Sebi has also reduced the gap between two qualified institutional placement(QIPs) to two weeks instead of the current six- month cooling off period.

“This does not allow promoters to do creeping acquisition through the secondary market. This can only be used if promoters are subscribing in a primary issue where money goes into the company through a preferential allotment. Having said this, this relaxation certainly allows promoters to raise their holding in the company without triggering an open offer,” said Nitesh Mehta,partner- Tax & Regulatory Services, BDO India.

Creeping acquisition can be done through both secondary market purchases and primary issue. Sebi has given a one time relaxation which is applicable for acquisitions made during the financial year 2021.

“The amendment will enable promoters to provide necessary equity funds to their company without incurring an obligation of open offer,” said Akila Agrawal, Partner & Head – M&A; Cyril Amarchand Mangaldas.

”This is especially important as companies are finding it difficult to access alternate methods of funding such as debt financing, etc. or access equity funding from third party investors. It will be interesting to see whether limited relaxation of only additional 5% will meet commercial requirements of companies,” Agarwal said.

Sebi’s decision to relax the time period between two QIPs will enable companies to regularly access investment from institutional investors.

Companies prefer to raise capital through QIPs as it’s faster and efficient.