Amendment in Takeover & QIP Regulations

SEBI has amended the takeover regulations to enhance the creeping acquisition limit for promoters of a listed company.

The amendment, notified on June 16, allows a shareholder owning 25% or more of the shares or voting rights in a company to increase his shareholding by up to 10% in a year versus the earlier 5% limit. But this increase in limit is permitted only via a preferential issue of equity shares.

The pertinent provision in the Substantial Acquisition of Shares and Takeovers Regulations, provides for shareholders to increase their shares or voting rights in a company, by upto a specified threshold, in order to consolidate their shareholding. Any increase in voting rights beyond the permitted threshold will result in a mandatory open offer, according to regulation 3(2) of the takeover regulations.

The threshold has been raised from 5% to 10%, via a preferential issue, only for financial year 2020-21.(Measure taken by sebi to boost the market in Covid-19 situation)

SEBI has also relaxed the provision for voluntary open offer. Earlier, a shareholder holding 25% or more of shares or voting rights was permitted to make a voluntary open offer, but only if he had not acquired any shares of the company via the creeping acquisition route in the preceding 52 weeks. That condition has now been relaxed till March 31, 2021.

In all cases though the increase in shareholding or voting rights is permitted only till the 75% non-public shareholding limit.

In a move to enable quick raising of capital by companies, the market regulator has also reduced the gap between two qualified institutional placements by a listed entity to two weeks. The existing regulations required listed companies to maintain a gap of six months between two such issues.

It seems that the relaxations will enable listed companies to raise funds from promoters to tide over the cash flow issues created due to the economic impact of COVID-19. The relaxations will be attractive for promoters given the current valuations in the markets.

The existing takeover code thresholds were forcing promoters of listed companies to adopt funding structures to enable debt servicing by companies. With the relaxation, they can now directly infuse funds through equity issuance.

SEBI has been relaxing norms and timelines relating to debt and equity instruments since March this year in a bid to shield companies from the slowdown caused by the outbreak of Covid-19.

The amendments come into effect immediately.