Rules eased for buying stake in stressed firms

Tribune News Service

New Delhi, August 16

To fight bad loans, the Securities and Exchange Board of India (SEBI) has eased norms for stake purchase in distressed listed companies by lenders, exempting them from making open offers for shareholders.

The new norms will be subject to certain conditions, including shareholders’ approval of the stake acquisition by way of a special resolution. The market regulator’s decision comes against the backdrop of the government and the RBI stepping up efforts to tackle the menace of bad loans, amounting to over Rs 8 lakh crore.

The regulator has eased the norms for restructuring in stressed companies that are listed on exchanges as well as resolution plans approved under the Insolvency and Bankruptcy Code, SEBI said in a notification dated August 14.

Stocks of several of the distressed companies surged after the announcement.

There have been representations made to SEBI that lenders that have acquired shares and propose to divest them to new investors faced difficulties as they have to make an open offer (a shareholder is given the opportunity to purchase stock at a price that is lower than the current market price). Such offers further reduce the funds available for investment in the company concerned.

In view of the concerns raised, SEBI has extended the relaxations to new investors acquiring shares in distressed companies pursuant to such restructuring schemes.

Such relaxations will be subject to certain conditions like approval by shareholders of the companies by a special resolution and lock-in of their shareholding for a minimum three years. Further, the relaxations will be applicable to the lenders under other restructuring schemes undertaken in accordance with the RBI guidelines.

It also notified rules to provide exemption from open offer obligations for acquisitions pursuant to resolution plans approved by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016.

Alternative mechanism for disinvestment

• The Cabinet Committee on Economic Affairs has approved a proposal of the Department of Investment and Public Asset Management (DIPAM) for revising the procedure and mechanism for strategic disinvestment
• Under the revised arrangement, an alternative mechanism will be set up consisting of the Finance Minister, Minister for Road Transport & Highways and minister of the respective administrative department to decide on the matters relating to terms and conditions of the sale from the stage of inviting of express of interests till inviting of financial bids