Sebi approves changes to preferential allotment norms on pricing, lock-in

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Markets regulator Sebi on Tuesday decided to relax pricing norms and lock-in requirements to make it easier for companies to raise funds through preferential allotment of shares.

In addition, the regulator has decided to allow pledging of shares allotted to promoter or promoter group under preferential issue during the lock-in period, according to a press release issued by Sebi after the board meeting.

To determine the floor price for frequently traded security, Sebi said the floor price for the preferential issue should be higher of 90/10 trading days' volume-weighted average price (VWAP) of the scrip preceding the relevant date.

For infrequently traded security, Sebi said a valuation report by a registered independent valuer will be required.

At present, the pricing formula in a preferential allotment is the VWAP of the last two weeks or the last 26 weeks, whichever is higher.

Sebi has said any preferential issue resulting in a change in control or allotment of more than a 5 per cent stake will require a valuation report from a registered valuer.

Moreover, any preferential issue allotment resulting in a change in control will be required to provide a reasoned recommendation from a committee of independent directors along with their comments on all aspects of preferential issuance, including pricing.

Further, the voting pattern of the committee should also be disclosed to shareholders or the public.

This comes against the backdrop of PNB Housing Finance's proposed allotment of preference shares to US-based Carlyle Group and a clutch of other investors hitting a roadblock.

Sebi had questioned PNB Housing Finance's rationale behind the fixing of the issue price, among other aspects, in that deal that was later shelved.

In the wake of the coronavirus pandemic, a temporary relaxation for pricing was allowed to make preferential allotment by using 12 weeks' VWAP.

Such a relaxation was applicable for the preferential issues made between July 1, 2020, and December 31, 2020.

In addition, the regulator has decided to relax lock-in provisions for a preferential issue to promoters and non-promoters.

For promoters, Sebi said the lock-in requirement for allotment up to 20 per cent of the post issue paid-up capital should be reduced to 18 months from the existing 3 years. The lock-in requirement for allotment exceeding 20 per cent of the post issue paid-up capital should be cut to 6 months from the existing 1 year.

"For non-promoters, the lock-in requirement for allotments shall be reduced from the requirement of 1 year to 6 months," Sebi said.

The regulator said that promoters should be permitted to pledge the shares locked-in following a preferential issue provided if the pledge of such securities is one of the terms of sanction of the loan granted by a financial institution.

Further, the loan is to be sanctioned to the issuer company or its subsidiaries for financing objects of the preferential issue, Sebi said.

The regulator also said that consideration for a preferential issue, other than cash should be permitted only for share swaps backed by a valuation report from an independent registered valuer.

The issuer company should necessarily apply for in-principle approval from stock exchanges on the same day as the date of dispatch of notice for AGM or EGM to the shareholder.