Sebi board to lay down broad framework for 'GIFT' on Sunday

Regulator expected to exempt companies from open offer in case of conversion of debt to equity

The Securities and Exchange Board of India (Sebi) in its quarterly board meeting on Sunday is likely to define a broad framework of liberalised regulations for financial institutions setting up shop at the Gujarat International Finance Tech (GIFT) City in Ahmedabad.

Sources indicate that the Sebi board is also likely to exempt companies from provisions of the takeover code under the Sebi Act while converting debt to equity under corporate debt restructuring.

The Sebi board will be addressed by Finance Minister Arun Jaitley as part of the customary post-Budget consultation.

In his Budget speech, the minister had announced that the regulations for GIFT City would be issued in March. To enable liberalised regulations for institutes set up at GIFT City, Sebi’s legal department has zeroed in on laws that will require amendments.

According to sources, the regulator will put in place enabling provisions for setting up international exchanges for equity, currency and commodity trading at GIFT City. Brokerage services and investment managers will be allowed to set up shop at the country’s first finance SEZ (special economic zone).

Addressing queries from reporters, Sebi chief U K Sinha had said on Friday that the  regulator would come out with formulations and regulations for GIFT City before the end of the month.

“GIFT City has been announced in the Budget and the time frame has also been given, effective

April 1. We’re in constant touch with RBI (Reserve Bank of India). Sebi and RBI will come out with formulations before April 1,” he had said.

A number of issues are being resolved, which include jurisdiction and application of the Foreign Exchange Management Act (Fema). The RBI board during the monetary policy review last month had stated that it was in discussions with Sebi to waive the provisions of the takeover code in some circumstances and issue capital guidelines on converting debt to equity.

Sources indicate that Sebi has conceded to the RBI’s proposal to exempt such conversions from the takeover code. Sebi will clear a discussion paper in this regard.

In its monetary policy statement, the RBI had stated, “Very often, the share prices of companies whose debt is being restructured, in accordance with the stipulations of ICDR Regulations, are found to be not in consonance with their intrinsic value.”

That results in upfront allocation of a disproportionate share of the loss on restructuring to banks, the statement added.

The Sebi board is also likely to take forward the Budget announcement on the merger of Forward Markets Commission (FMC) with Sebi, though the contours of the merger may not be announced.

ON SEBI’S RADAR

• Broad framework of liberalised regime for GIFT
   
• Conversion of debt to equity may be exempted from takeover code
   
• FMC-Sebi merger to be taken forward
   
• Sebi’s annual budget to be cleared
   
• Union Budget announcements to be taken forward