Financial Insights

SEBI relaxes preferential allotment rules

Capital Markets regulator SEBI has relaxed its pricing norms and lock-in requirements to make the process of raising funds through preferential allotment easier. Additionally, SEBI has also allowed the pledging of shares allotted to the promoter or promoter group under preferential issue during the lock-in period. The lock-in requirement for allotment upto 20% of post issue paid-up capital has been reduced to 18 months from 3 years. Lock-in requirement for allotment exceeding 20% has been cut to 6 months from 1 year. Lock-in requirements for non-promoters has been reduced to 6 months from 1 year.

For determining the floor price of a frequently traded security, it should be higher of 90/10 volume weighted average price (VWAP) of the stock preceding the relevant date. A valuation report by a registered independent valuer will be used to determine the floor price of an infrequently traded security. Moreover, any preferential issue allotment resulting in a change in control or allotment of more then 5% stake will require valuation report from a registered valuer. Such an allotment will need a reasoned recommendation from a committee of independent directors covering all aspect of the preferential allotment including pricing. Furthermore, the voting pattern of said committee must be disclosed to the shareholders and the public.

Presently, the pricing norm for preferential allotment is the VWAP of last 2 weeks or the last 26 weeks.

Currently, SEBI is examining a proposal for introducing an alternate dispute resolution mechanism which aims at providing an effective system for settling disputes between investors and regulated entities.

Highlight by Aman Agarwal.

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