Sebi to tighten takeover regulations for companies under IBC process

The move was aimed at reducing ambiguity and curb the misuse of the regulations

The Securities and Exchange Board of India (Sebi) plans to tighten takeover norms applicable to companies undergoing proceedings under the Insolvency and Bankruptcy Code (IBC). 

Sources said the capital markets regulator would do away with the provision that allowed a ‘competent authority’ to exempt an acquirer from the requirement of an open offer. Only a court or a tribunal would be allowed to provide such exemptions, they added. 

Experts said the move was aimed at reducing ambiguity and curbing the misuse of the regulations.

While at present the rules allow a “competent authority” to provide an open offer exemption, the regulations have not defined who can act as a “competent authority”, leaving it open for interpretation. Typically, a competent authority can be a sector regulator or ministry.

“To ensure the exemption provided for the IBC is not misused, Sebi is planning to sharpen the language of its regulations,” said a source. Also, the market regulator will change the wordings to ensure the exemptions are given only to lenders, and not any other entity.

Last year, Sebi allowed open offer exemptions for acquisitions made through IBC resolutions. The move was to help banks better tackle the bad loan problem.

Under normal circumstances, a 26 per cent open offer is mandatory whenever, among other things, there is a change in control at a listed company. However, during corporate debt restructuring, the open offer requirements put extra burden on the acquirer, often lenders, who are already staring at a haircut.

Sources said the changes would be announced at Sebi’s board meeting on Friday. The Sebi board is also likely to approve a new valuation methodology for valuation of money market and debt securities of mutual funds. The move comes at a time when the Rs 24-trillion MF industry is under pressure due to their exposure to companies with high debt. 

Sebi will also announce changes to the newly introduced innovators growth platform (IGP), aimed at start-up listings. Further, Sebi will ease the real estate investment trusts (REIT) and infrastructure investment trusts (InVIT) regulations. It will also take steps to boost institutional investor participation in the commodity derivatives market.

Other key issues on the agenda

• Transfer of surplus reserves to the exchequer
• Permanent registration for custodians
• Participation of FPIs in commodity derivatives
• Review of the debenture trustee framework