Tuesday, February 24, 2009

SEBI amends DIP Guidelines - quick highlights

SEBI has amended the DIP guidelines vide circular dated 24th February 2009. Several amendments have been made and while some are minor or consequential to other amendments made recently, some are far reaching. While I will post more detailed comments later, let me quickly highlight a few important changes.

1)      Listing of equity shares with differential rights as to dividends, voting or otherwise:- 

a)      Conditions for listing of such equity shares that are issued otherwise than by making an IPO have been laid down. Important substantive conditions are that such shares should be issued by way of rights/bonus to all existing shareholders and the Company should be compliant of minimum public shareholding norms for its equity shares already listed and also for the fresh issue.

2)      Listing of warrants offered along with NCDs under Chapter XIII-A (Qualified Institutions Placements):-

a)      Such warrants can be considered for listing if there is a combined issue of NCDs/warrants and Chapter XIII-A is fully complied with for such issue.

b)      There would be a minimum trading lot of such NCDs/warrants of Rs. 1 lakh.

3)      The application for listing of the equity shares with differential rights and warrants/NCDs shall be made through the designated stock exchange who will forward the application to SEBI with its recommendations.

4)      Guidelines for Preferential Issues:-

a)      Finally, the minimum amount payable with application for Share Warrants in case of preferential issues has been raised from 10% to 25% of the issue price.

b)      Readers may recollect that in August 2008, the lock in period relating to warrants, etc. were amended. There was controversy arising out of such amendment. SEBI has attempted to simplify the wording and make it internally consistent. It has done this by bifurcating the ambiguous clause relating to lock in of instruments/shares into two parts.

i)      The first part talks of lock in period of instruments allotted to Promoter/Promoter Group and shares allotted to them on exercise of Warrants. Both shall be locked in for 1 year. These lock in periods are obviously in addition to the 3 year period otherwise applicable for allotments to such persons, read with of course the 20% limit for the 3 year lock in.

ii)     The second part is almost identically worded, except that it refers to instruments/shares allotted to persons other than such Promoters.

iii)    In clause (d), which refers to set off of lock in suffered by instruments, it is now provided that such instruments shall not include warrants.

iv)     The amended clauses are certainly worded better, if one compares only to the earlier wording, which was convoluted, being the result of redrafting exercises over time. However, despite such amendments and consistency in wording, certain basic ambiguities remain. Actually, the lock in requirements are intended to be quite simple and they whole clause could have been redrafted, instead of focusing on the recent changes. More on this later.

c)      The Satyam amendments:- Several relaxations to pricing, disclosures, etc. are now provided for where SEBI has already granted exemption under the new Regulation 29A. Considering that Regulation 29A itself had, I think, effective applicability of one single case, the amendments will have similar shelf life. However, they will remain as part of Regulations and the DIP Guidelines till they are dropped.

5)      Bonus shares:- These shall now be issued within 15 days of Board approval, where shareholder approval for such issue is not required. And the Board cannot change such decision. Where approval of shareholders is required as per the companys Articles of Association, the issue shall be made within 2 months of the Board meeting where such issue was announced.

6)      There are a few IPO related amendments, relating to roll-over of NCDs, etc.

7)      The amendments are generally prospective but with two interesting exceptions.

a)      The amendment increasing the minimum amount payable for issue of Share Warrants from 10% to 25% applies if the shareholders approval is obtained after 24th February 2009. This would affect all those cases (I presently do not know how many or if any) where notices are already issued and the general meeting is convened on 25th February 2009 or later.

b)      It would be interesting to examine how the amendments relating to lock-in apply to issues made since the last amendment in August.

-       Jayant Thakur

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