Markets regulator Sebi is likely to amend some existing regulations to ease the insolvency process initiated by the Reserve Bank of India (RBI) and other lenders against companies with high debt.
According to sources, Sebi is planning to reduce the timeline for completion of takeover from six months to 30 days for acquirers in the case of insolvency proceedings. Price discovery and disclosure-related rules in such takeovers are also expected to be relaxed.
Sources said the regulator was considering doing away with the price discovery formula used to arrive at the open offer price for such acquisitions. The price agreed upon by all stakeholders, including lenders and investors, would be the final price for acquisition. However, this could require an approval from the National Companies Law Tribunal (NCLT) where insolvency proceedings are pending. Besides, such acquisitions are also expected to be exempted from the mandatory open offer.
“Sebi is planning to add a new chapter to the ICDR regulations, similar to Chapter VII, which deals with debt-to-equity conversion in stressed companies. The regulations will be in line with the current government’s intention to wrap up the insolvency proceedings in a quick and efficient manner,” said a source.
From the perspective of safeguards, Sebi is likely to restrict any change to the board structure or corporate structure of the company until insolvency proceedings are going on in the NCLT. Further, any investor who has sold shares in the stressed company during the past one year would not be eligible for these relaxations.
“Such relaxations are needed to attract strategic investors to buy distressed companies as there are chances of a turnaround in the company under new management. This would not just help lenders recover their debts but also protect the interests of minority shareholders,” said Sudhir Bassi, partner, Khaitan & Co.
This is not the first time the regulator has come to the aid of banks in distressed assets cases. In the past, it had relaxed takeover norms for several companies, the most recent being domestic carrier Spicejet. However, having standard regulations would ease the process and also make it quicker, say experts.
The move comes after the RBI initiated insolvency proceedings against 12 large borrowers, many of whom are in the listed space. These borrowers account for nearly a fourth of the total bad loans in the banking system.