After the Franklin Templeton debt mutual fund (MF) debacle and long-drawn litigations that followed, market regulator Securities and Exchange Board of India (SEBI) has decided to mandate trustees of a mutual fund (MF) to obtain the consent of the unit-holders when the majority of the trustees decide to wind up a scheme or prematurely redeem the units of a close-ended scheme. It also decided to monitor the money raised by companies through an initial public offering (IPO) for the general corporate purpose (GCP), and disclosure of its utilisation by the monitoring agency.
“The trustees should obtain the consent of the unitholders by a simple majority of the unitholders present and voting based on one vote per unit held and publish the results of voting within 45 days of the publication of notice of circumstances leading to winding up. In case the trustees fail to obtain consent, the scheme should open for business activities from the second business day after publication of results of the voting,” SEBI says.
The SEBI board also approved an amendment to mutual fund (MF) regulations to mandate MF schemes to follow Indian Accounting Standard (IND AS) from 2023-24. Further, it approved amendments to MF regulations regarding accounting-related regulatory provisions to remove redundant provisions and bring more clarity.
At its meeting, the SEBI board approved proposals to amend various aspects of the regulatory framework under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations) and consequential amendment to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as applicable, based on the public consultation process on the proposals recommended by its primary market advisory committee (PMAC).
Setting conditions for objects of the IPO, SEBI says, “Where the issuer company in its offer documents, set out an object for future inorganic growth but has not identified any acquisition or investment target, the amount for such objects and amount for GCP shall not exceed 35% of the total amount being raised.”
“The amount so earmarked for such objects where the issuer company has not identified acquisition or investment target, as mentioned in objects of the issue in the draft offer document and the offer document, shall not exceed 25% of the amount being raised by the issuer,” it added.
The above-mentioned limits, however, will not apply if the proposed acquisition or strategic investment object has been identified and suitable specific disclosures about such acquisitions or investments are made in the draft offer document at the time of filing.
During the meeting, the SEBI board also reviewed the role of KYC registration agencies (KRAs) and approved some amendments. As per the approved amendment, KRAs have been made responsible for independently validating the KYC records uploaded onto their system by the registered intermediary (RI) and maintaining an audit trail of the upload or modification and download KYC records of client.
“It has also been prescribed that the systems of the RIs and KRAs should be integrated to facilitate seamless movement of KYC documents to and from RIs to KRAs,” the market regulator added.
SEBI also decided to set conditions for the offer for sale (OFS) to the public in an IPO where the draft red herring prospectus (DRHP) is filed by the issuer without a track record. It says, “Shares offered for sale by selling shareholders, individually or with persons acting in concert, holding more than 20% of the pre-issue shareholding of the issuer, should not exceed more than 50% of their pre-issue shareholding.”
For those holding less than 20% of pre-issue shareholding, the shares offered should not exceed more than 10% of pre-issue shareholding of the issuer, it added.
The board approved the proposal to amend the SEBI (Listing Obligations and Disclosure Requirements) Regulations for issuance of securities in dematerialised form in case of investor requests for issue of duplicate shares. This move will improve ease, convenience and safety of transactions for investors.
The SEBI board also allowed registered credit rating agencies (CRAs) as monitoring agency and reporting on utilisation of issue proceeds, instead of scheduled commercial banks (SCBs) and public financial institutions (PFI).
“Such a monitoring should continue till 100% instead of 95% utilisation of issue proceeds as present. Amount raised for GCP should also be brought under monitoring and utilisation of same shall be disclosed in monitoring agency report. The monitoring agency report should be placed before audit committee for consideration ‘on a quarterly basis’ instead of ‘on an annual basis’,” the regulator says.
In case of book-built issues, SEBI says, a minimum price band of at least 105% of the floor price would be applicable for all issues opening on or after notification in the official gazette.
While the existing lock-in of 30 days would continue for 50% of the portion allocated to anchor investor, for the remaining portion, SEBI says, lock-in of 90 days from the date of allotment would be applicable for all issues opening on or after 1 April 2022.
SEBI also decided to introduce provisions related with appointment or a re-appointment only with the prior approval of the shareholders, of any person, including as a managing director or a whole-time director or a manager, who was earlier rejected by the shareholders at a general meeting.
The market regulator also decided to revise allocation methodology for non-institutional investors (NIIs). Accordingly, one-third of the portion available to NIIs would be reserved for applicants with application size of more than Rs2 lakh and up to Rs10 lakh. Futher, two-third of the portion available to NIIs would be reserved for applicants with application size of more than Rs10 lakh, it says.
Allotment of securities in case of NII category would be on ‘draw of lots’, as is currently applicable for retail individual investors (RIIs) category or draw of lots to allot minimum application size to applicants, in case of oversubscription and balance allotment on proportionate basis.
The SEBI board also considered and approved the amendments to the SEBI (Foreign Portfolio Investors-FPI) Regulations, 2019, to enable the market regulator to generate unique registration numbers of FPIs on receiving the basic details of the applicants seeking FPI registration from either of SEBI-registered depositories.
For all preferential issues where the relevant date is after the notification in the official gazette, the SEBI board decided to determine floor price, need for a valuation report, the recommendation from independent directors, lock-in provisions and pledge of locked-in shares.
1. Following shall be applicable for all preferential issues where relevant date is after the notification in the official gazette:
a. Determining the floor price: Following factors shall be considered for determining the floor price for all preferential issues:
i. For frequently traded security, the floor price for preferential issue shall be higher of 90/10 trading days’ volume weighted average price (VWAP) of the scrip preceding the relevant date or as per any stricter provision in the Article of Association of the issuer company.
ii. For infrequently traded security, the valuation report by a registered independent valuer shall be required.
b. An additional requirement for a valuation report from a registered independent valuer shall be required in case of change in control/ allotment of more than 5% of post issue fully diluted share capital of the issuer company to an allottee or to allottees acting in concert. The same shall be considered for determination of floor price in addition to the methodology brought out at (a) above.
a. Further, in case of change in control, a committee of independent directors shall be required to provide a reasoned recommendation along with their comments on all aspects of preferential issuance including pricing. The voting pattern of the committee shall also be disclosed to shareholders/public.
b. Lock-in Provisions for preferential issue: In line with lock-in requirements for public issues, the tenure of lock-in of shares pursuant to a preferential issue shall be reduced as follows:
i. For Promoters:
The lock-in requirement for allotment upto 20% of the post issue paid up capital shall be reduced to 18 months from the existing 3 years. The lock-in requirement for allotment exceeding 20% of the post issue paid up capital shall be reduced to 6 months from the existing 1 year.
ii. For Non-promoters:
The lock-in requirement for allotments shall be reduced from requirement of 1 year to 6 months.
c. Pledge of locked-in shares:
Promoters would be permitted to pledge the shares locked-in pursuant to a preferential issue provided if pledge of such specified securities is one of the terms of sanction of the loan granted by certain financial institutions and the said loan is to be sanctioned to the issuer company or its subsidiary(ies) for the purpose of financing one or more of the objects of the preferential issue.
d. Preferential Issue for consideration other than cash:
Consideration for preferential issue, “other than cash” shall be permitted only for share swaps backed by a valuation report from an independent registered valuer.
e. Timelines for seeking in-principle approval from stock exchanges by issuer company:
Issuer company shall necessarily apply for in-principle approval from stock exchanges on the same day as the date of dispatch of notice for AGM/ EGM to shareholders.