To tide over the liquidity crisis created by the Covid-19 pandemic, the Securities and Exchange Board of India (Sebi) has eased capital raising norms for listed companies.
The markets regulator has amended the takeover code to allow promoters to acquire up to 10 per cent in a financial year without triggering an open offer. However, such an acquisition can be done only through the preferential issue of equity shares. In other words, promoters will have to infuse fresh capital into their company and not simply acquire shares from the secondary market.
In the normal course, promoters are allowed to increase their stake by up to 5 per cent — referred to as creeping acquisition — in a financial year without having to make an open offer.
Sebi has also relaxed the norms for qualified institutional placements (QIP), a popular route to raise fresh capital from institutional investors. The regulator has eased the mandatory six-month cooling-off period between two QIPs to just two weeks.
“Given the cash-crunch situation, Sebi is incentivising promoters to do a preferential allotment of a large size and only then take benefit of the increased creeping acquisition limit. Given the pricing norms for preferential allotments have not changed, Sebi has chosen to incentivise promoters coming at higher prices and also companies to receive larger amounts from promoters should the need arise,” said Gautham Srinivas, partner, Khaitan & Co.
While stocks have rebounded sharply from March lows, the benchmark indices are still down 19 per cent on a year-to-date basis. Nitesh Mehta, partner, BDO India, said the relaxations provide a good opportunity to promoters who are looking at increasing their stake at attractive valuations, given the current market situation.
Market experts said reducing the QIP cooling-off period to just two weeks will help companies, particularly those in the financial space, raise capital at regular intervals. It will also help companies better time their share sales and tide over the volatility, they said. “In the current scenario, companies are considering fundraising options that offer reduced timelines, help with deleveraging liabilities, involve less regulatory intervention, and allow access to willing investors. These temporary relaxations will enable promoters to push cash into their companies to tide over the adverse impact of the Covid-19 crisis,” said Jitesh Shahani, partner, L&L Partners.
An average Rs 26,500 crore has been raised through QIPs in each of the past five years. So far this year, six companies have raised a total of Rs 27,803 crore through this route. After the latest relaxation, experts say QIP issuances could accelerate.
“QIP is one of the most important fundraising routes for listed companies, given its shorter timeline and disclosure light offer document. This reduced cooling-off period gives much-needed flexibility to issuers to structure their fundraising plans around the share price movement in the secondary market,” said Vishal Yaduvanshi, partner, IndusLaw.
In recent weeks, blue-chip firms have been able to raise capital at ease. However, investors continue to remain wary of firms in the small- and mid-size space. The latest relaxations alleviate some pain for such companies, experts said.