Regulatory Alert: Amendment in SEBI Takeover Regulations and ICDR Regulations to facilitate fundraising

Considering the current situation and disruption caused due to the COVID-19 pandemic, the Securities and Exchange Board of India (“SEBI”) on 16 June 2020, granted certain relaxations by amending the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations) and the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”) vide two separate notifications.

The amendment will enable listed companies to raise funds quickly either from the promoters or through Qualified Institutional Placements (“QIPs”).

The Key highlights of the notifications are as under:

1. Amendment in Takeover Regulations[1]:

• Regulation 3 - Substantial acquisition of shares or voting rights
  • The extant provision in Takeovers Regulations allows the acquirer, either by themselves or through Persons acting in concert with him, who are holding more than 25% but less than 75% shares or voting rights in the target company, to acquire additional 5% shares or voting rights in the financial year by way of creeping acquisition without triggering open offer. 
  • The amendment now allows the Promoters to acquire up to 10% (as against 5% earlier) of the voting rights in the target company for the financial year 2020-2021 without triggering open offer, if such acquisition is pursuant to preferential issue of equity shares by the target company.  
• Regulation 6 - Voluntary Offer 
  • At present, an acquirer who together with Persons acting in concert with him intend to hold more than 25% but less than 75% of shares or voting rights in a target company are permitted to do so by making a voluntary open offer.
  • However, such persons were permitted to make voluntary offer only when they have not acquired any shares of the company in the preceding 52 weeks, without attracting the obligation to make a public announcement of an open offer. 
  • The amendment has now removed the above requirement of making voluntary open offer only when no shares are acquired in the preceding 52 weeks, till 31 March 2021.

2. Amendment in ICDR Regulations[2]:

• Regulation 172 – Eligibility conditions for QIPs
  • Under the extant provisions, listed companies were required to maintain the time gap of at least 6 months between two consecutive QIPs of eligible securities. 
  • The amendment has now reduced the above time gap between two consecutive QIPs to 2 weeks .

BDO Comments

The relaxation in the creeping acquisition limits i.e. allowing promoters to increase its shareholding upto 10% in a year (versus 5% earlier) without triggering open offer will on one hand enable promoters to increase their stake in the target company and build investor’s confidence and simultaneously the target company will also immediately get the funds required for its operations.

Further, the reduction in the time gap between two consecutive QIPs from 6 months to 2 weeks is another positive move, enabling listed entities to raise funds from QIPs to overcome the cashflow crunch faced by them due to business disruption caused on account of the COVID-19 pandemic.