Sebi eases rules for lenders buying stake in distressed companies

Exempts lenders from making open offers to shareholders

Markets regulator Sebi has notified relaxed norms for stake purchase in distressed listed companies by lenders, exempting them from making open offers for shareholders.

The relaxation will be subject to certain conditions, including shareholders' approval of the stake acquisition by way of special resolution.

The Sebi decision comes against the backdrop of the government and the Reserve Bank of India 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.

The move is aimed at facilitating turnaround of listed companies in distress which will benefit their shareholders and lenders.

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 that have acquired shares and propose to divest them to new investors faced difficulties as the latter have to make an open offer. 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 special resolution and lock-in of their shareholding for a minimum three years.

"The lock-in of equity shares acquired pursuant to conversion of convertible securities purchased from the lenders shall be reduced to the extent the convertible securities have already been locked-in," the regulator noted.

The special resolution requires approval of at least 75 per cent of a company's shareholders.

Further, the relaxations will be applicable to the lenders under other restructuring schemes undertaken in accordance with the RBI guidelines.

Besides, the issuer will have to make certain disclosure about the proposed acquirer in the explanatory statement to the notice for the general meeting proposed for passing the special resolution.

These disclosures are about the ultimate beneficial owners of the shares proposed to be purchased, its business model, a statement on growth of business over a period of time, summary of financials of the previous three financial years, track record in turning around companies, and the proposed road map for effecting turnaround of the issuer.

It also notified rules to provide exemption from open offer obligations for acquisitions pursuant to resolution plans approved by the 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).

The board of Securities and Exchange Board of India (Sebi) had approved a proposal in this regard in June.

In June, the RBI had identified 12 stressed accounts for resolution under the Code. These include listed companies.