The Securities and Exchange Board of India (“SEBI”) amended the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2008 (“ICDR Regulations”), by the SEBI (Issue of Capital and Disclosure Requirements) (Third Amendment) Regulations 2015, which was notified on August 11, 2015 (“Notification”). The Notification intents to further ease the procedure for inter alia, fund raising by public issue of securities or rights issue under the “fast track issue” mechanism available in the ICDR Regulations. The ICDR Regulations exempt certain companies from filing and reporting compliances/norms, such as filing of a draft offer document and procuring in principle approvals from recognised stock exchanges, related to rights issue and public issue of securities, provided such companies satisfy the criteria set out under regulation 10 of the ICDR Regulations. Salient features of the Notification, which inter alia widen the scope for this exemption, are summarised below:
- To gain exemption under the fast track issue mechanism, the average market capitalisation of public shareholding of the issuer, in the case of public issue of securities should be a minimum of `10,000,000,000 (Indian Rupees Ten billion) whereas in the case of a rights issue, should be a minimum of `2,500,000,000 (Indian Rupees Two billion five hundred million);
- Imposition of any monetary fines on issuer by stock exchanges will not exclude such companies from availing the exemption of the fast track mechanism, if all other criteria are met;
- Equity shares of the issuer, should not have been suspended from trading during the last 3 (three) years preceding the reference date (i.e., the date of registering the red herring prospectus or prospectus or the date of filing letter of offer, as the case may be) as a disciplinary measure. Further, during the last 3 (three) years preceding the reference date, neither the issuer nor the promoter/promoter group/director of the issuershould have settled any alleged violations of securities laws, through the consent or settlement mechanism with SEBI;
- In case of a rights issue, promoters of the issuer will have to mandatorily subscribe to their rights entitlement and will not be permitted to renounce their rights, except for renunciation within the promoter group or for the purpose of complying with the minimum public shareholding norms under Rule 19A of the Securities Contracts (Regulation) Rules, 1957;
- The annualised delivery-based trading turnover of the listed equity shares, of the issuer, during the last 6 (six) months preceding the month of the reference date, should be a minimum of 10% (ten percent) of the weighted average number of equity shares listed during such period;
- There should be no conflict of interest between the lead merchant banker(s) and the issuer or its group or associate companies in accordance with applicable regulations;
- The Notification also directs the interim use of net proceeds from the public or rights issue, pending utilisation will have to be deposited in scheduled commercial banks that are under the Reserve Bank of India Act, 1934. Further, an issuer making an issue of Indian Depository Receipts, will have to deposit its funds in a bank that has an international credit rating agency rating of ‘A’ or above.
Widening the scope of the exemption for filing and reporting compliances will help many more listed companies from availing of the fast track issue mechanism, saving valuable time and effort and enabling them raise funds a lot quicker. The Notification however poses a greater responsibility on promoters and the issuing company itself, with restrictions regarding the use of funds that are pending utilisation, to prevent the wrongful diversion of funds.