Skip to main content

Sebi team working on relaxation for IBC firms

Sebi team working on relaxation for IBC firms
Easing of delisting rules and exemption from public shareholding norms among key proposals
Market regulator Sebi has formed a team to look into securities law changes, after advent of the Insolvency and Bankruptcy Code. The team will collect inputs from all stakeholders and examine feasible proposals. The final report is expected by March.
The Securities and Exchange Board of India (Sebi) has formed a team to look into securities law changes, after advent of the Insolvency and Bankruptcy Code (IBC). The team will collect inputs from stakeholders and examine feasibility of proposals.
Sources said doing away with the tedious reverse book building process (RBB) for delisting of IBC companies, exemption from minimum public shareholding (MPS) norms and relaxation from some compliance requirements will be among the recommendations considered. The final report is expected by March.
The move comes after Sebi, the markets regulator, received requests from stakeholders, especially banks, to relax certain regulations in line with the newly enacted IBC. This would be the second round of relaxations for IBC companies. Previously, Sebi had exempted buyers of insolvent companies from making an open offer to minority shareholders during a takeover.
“We have been receiving several inputs from stakeholders to tweak some of the existing regulations for companies under IBC. Hence, we have formed an internal team,” said Ajay Tyagi, chairman, Sebi.Many companies undergoing insolvency proceedings are listed players. However, several prospective buyers are keen on delisting the sick companies after acquisition.This would reduce compliance burden, as therewould be no need for the new buyers to engage with minority shareholders for every important decision.
Several bankers had approached Sebi, seeking exemption from RBB and creating a scheme where the exit price is determined by independent valuation, by experts. A similar scheme was earlier proposed by Sebi in the compulsory delisting of regional stock exchange listed companies, which had not migrated to a recognised bourse.
In normal circumstances such an exercise needs to follow Sebi’s delisting guidelines. However, the framework is comparatively rigid. There is a good chance that a few minority shareholders could hold the delisting hostage.
RBB is a price discovery mechanism for minority shareholders. Shareholders bid for the price at which they are willing to tender shares. The final offer price for delisting is determined at which the highest number of shares has been offered. Hence, minority shareholders in tandem could derail a delisting process by jacking up prices and making the buyback unviable for the company.
While Sebi kept the delisting norms tight to discourage promoters from bulldozing their decision on minority shareholders, legal experts say IBC cases are very different, as public shareholders lose their say in the process itself.
“Sebi should review some of its regulations to make the IBC process smooth and successful. While a company is undergoing a turnaround through IBC, it is difficult to expect it to comply with normal Sebi regulations. Minority shareholders lose their voice in IBC companies, as most of such companies see 99 per cent of their equity wealth being wiped out,” said Sandeep Parekh, founder, Finsec Law Advisors.
Another suggestion under Sebi consideration is relaxing of the MPS requirements for companies under IBC. According to the current rules, every listed company should have a minimum 25 per cent public shareholding and if it falls below the threshold, the company is given one year to readjust and achieve the 25 per cent requirement.
The Business Standard, New Delhi, 11/01/2018

Comments

Popular posts from this blog

RBI minutes show MPC members flagged upside risks to inflation

RBI minutes show MPC members flagged upside risks to inflation Concerns about economic growth and easing inflation prompted five of the six monetary policy committee (MPC) members to call for a cut in the repo rate, but most warned that prices could start accelerating, show the minutes of the panel’s last meeting, released on Wednesday. The comments reflected a tone of caution and flagged upside risks to inflation from farm loan waivers, rise in food prices, especially vegetables, price revisions withheld ahead of the goods and services tax, implementation of house rent allowance under the 7th pay commission and fading of favourable base effect, among others. On 2 August, the panel chose to cut the repurchase rate—the rate at which the central bank infuses liquidity in the banking system—by 25 basis points to 6%. One basis point is one-hundredth of a percentage point. Pami Dua, professor at the Delhi School of Economics, wrote that her analysis showed “a fading economic growth outlook, as …

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

Differential Tax Levy under GST: Food Firms May De-Register Trademarks

Differential Tax Levy under GST:Food Firms May De-Register Trademarks The government’s decision to charge an enhanced tax rate on trademark food brands is leading several rice, wheat and cereal manufacturers to consider de-registering their product trademarks. Irked by the June 28 central government notification fixing a 5 per cent goods and services tax (GST) rate on food items packaged in unit containers and bearing registered brand names, the industry has made several representations to the government to reconsider the differential tax levy, which these players say is creating an unlevel playing field within these highly-competitive and low-margin industries. Sources say that the move has affected the packaged rice industry the hardest and allowed the un-registered market leaders, India Gate and Daawat, to gain advantage as compared to other registered brands such as Kohinoor and Lal Qilla. Smaller players are even more worried with this enhanced rate of tax (against the otherwise …