Securities and Exchange Board of India (SEBI) in its meeting today has taken decisions that will make M&A and private investment in public equity (PIPE) transactions easier.

Open Offer Exemption for Distressed Public M&A

Extending the relaxation from making mandatory open offer (MTO) that is presently available only to lender restructuring distressed listed companies (Distressed Companies) through Strategic Debt Restructuring scheme of the Reserve Bank of India (RBI), investors acquiring substantial shares or control of Distressed Companies under any RBI restructuring schemes will not be required to make a MTO subject to certain conditions, including:

  • shareholders of the Distressed Company approving such transaction by way of a special resolution; and
  • 3 year lock-in of investor’s shareholding.

Exemption from MTO will also be available to restructurings approved by National Company Law Tribunal under the Insolvency and Bankruptcy Code 2016.

IPO Lock-In Exemption for Certain Private Equity Investors

A relaxation that was sought after by the Indian Private Equity and Venture Capital industry for a very long time seemed to have reached a fair conclusion.

At present, the entire pre-IPO shareholding of private equity investors is locked-in for a period of 1 year. However, an exemption from the 1 year lock-in is available to Foreign Venture Capital Investors (FVCIs) and Category I alternative investment funds who have held securities for at least 1 year (including for period prior to the listing). SEBI has now agreed to extend exemption from the 1 year lock-in to Category II alternative investment funds, i.e., private equity funds and real estate funds registered with the SEBI (Cat II AIF).

This exemption is available only to SEBI registered Cat II AIFs and not for investments made under foreign direct investment route. Going forward, private equity firms investing in portfolio companies that have a higher likelihood of being listed should consider investing all or part of such investments through a Cat II AIF entity.

Comment

The text of the regulations amending necessary provisions is expected in the next few days, however, these changes will significantly improve deal-making involving listed companies, in distress or otherwise.

SEBI should also soon conclude on certain other thorny issues like: (a) bright-line test for determination of “control” in listed companies in context of affirmative or negative vote matters, and (b) non-identification of private equity investors as “promoters” of to be listed companies.