Sebi eases buyout norms for stressed firms; curbs P-Note use

Joining efforts in tackling the over Rs 8-lakh crore bad loans crisis, markets regulator Sebi today relaxed its takeover norms for restructuring listed companies with stressed assets.
The relaxation, which would exempt investors from making a mandatory open offer subject to shareholders' nod and some other conditions, was part of a slew of reform measures approved by Sebi's board here today along with tightening of P-Note norms and easier entry rules for foreign investors.
Sebi's decision on restructuring in stressed firms comes against the backdrop of the government and Reserve Bank of India stepping up efforts to tackle the menace of bad loans, amounting to more than Rs 8 lakh crore.

Sebi has eased the norms for restructuring stressed companies that are listed on exchanges as well as for resolution plans approved under the Insolvency and Bankruptcy Code.
These steps are aimed at facilitating "turnaround of listed companies in distress which will benefit their shareholders and lenders", according to Sebi.
Currently, relaxations from preferential issue requirements and open offer obligations are available for lenders undertaking restructuring of distressed listed companies under the Strategic Debt Restructuring (SDR) scheme.

There have been representations made to Sebi that lenders who have acquired shares and propose to divest them to new investors faced difficulties as the latter have to make open offers. Such offers further reduce the funds available for investment in the company concerned.

In view of the concerns raised, Sebi has decided to extend the relaxations to the new investors acquiring shares in distressed companies pursuant to such restructuring schemes.
"Such relaxations shall be subject to certain conditions like approval by the shareholders of the companies by special resolution and lock-in of their shareholding for a minimum period of three years," the regulator said in a release.
Special resolution requires approval of at least 75 per cent of a company's shareholders.
The relaxations would also be applicable "for acquisitions pursuant to resolution plans approved by NCLT under the Insolvency and Bankruptcy Code, 2016".

Under the Code, lenders or the companies seeking insolvency proceedings have to first approach the National Company Law Tribunal (NCLT).
Earlier this month, RBI identified 12 stressed accounts for resolution under the Code. These include listed companies.
"It is expected that soon many big stressed listed companies would undergo management changes as per these schemes and hence Sebi's exemption would be a great relief to investors," Manoj Kumar, Partner and Head (M&A and Transactions) at advisory firm Corporate Professionals said.
As part of continuing efforts to stymie flow of illicit funds into the market, Sebi has further tightened the norms for Participatory Notes (P-Notes) by deciding to levy a hefty fee of USD 1,000 on each instrument.

Further, entities have been barred from issuing P-Notes for speculative purposes.
After the board meeting, Sebi Chairman Ajay Tyagi said the regulator was not looking to completely ban these instruments as some new investors tend to use them to test the Indian markets.
The value of foreign investments through P-Notes or Offshore Derivative Instruments (ODIs) has already fallen to a four-month low of Rs 1.68 lakh crore at the end of April.
At one point of time, these investments used to account for more than half of overall foreign portfolio investments and now their share has fallen to just 6 per cent.

Now, a "regulatory fee" of USD 1,000 would be levied on each ODI subscriber, to be collected and deposited by the issuing FPI once every three years, starting from April 1, 2017.
Sebi has also decided to relax the entry norms for overseas investors by permitting a direct access to Foreign Portfolio Investors (FPIs) from eligible jurisdictions.
In this regard, a discussion paper on easing the registration process for FPIs would be floated.
Tyagi said the regulator has rationalised "fit and proper" criteria for FPIs as well as simplified broad based requirements for such investors.
Among others, the watchdog has decided to expand the eligible jurisdictions for grant of FPI registration to category-I FPIs by including countries having diplomatic tie- ups with India.

Besides, the Sebi board approved its annual report for 2016-17, which will be submitted to the government.