India's capital market regulator the Securities and Exchange Board of India (SEBI) has relaxed norms for conversion of debt of listed companies into equity by banks and financial institutions in a meeting on Sunday.
Although banks were already allowed to convert such debt into equity, they were constrained by the pricing which required the conversion to take place at market prices. The guidelines issued by SEBI pointed to use of a fair-price mechanism in valuation of debt altering the current rules. The move would help the banks to reach a price so that the value doesn't go below the face value for restructured debt of distressed firms.
In the board meeting, SEBI approved the proposal, prepared in consultation with banking regulator RBI, to relax the applicability of certain provisions of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 and the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 in cases of conversion of debt into equity of listed borrower companies in distress by the lending institutions.
“Such relaxation in terms of pricing will be subject to the allotment price being as per a fair price formula prescribed and not being less than the face value of shares… Other requirements would be available if conversions are undertaken as part of the proposed Strategic Debt Restructuring (SDR) scheme of RBI,” it said.
According to SEBI, this is intended to revive such listed companies and provide more flexibility to the lending institutions to acquire control over the company in the process of restructuring.
The profits of Indian banks have suffered as bad loans have increased with weak economic growth in the recent past. As per data released by the RBI, the gross
non-performing assets (NPAs) of the PSU banks in particular were Rs 2,60,531 crore as on December 31, 2014.
SEBI has also tightened the disclosure norms requiring listed firms to make the disclosure of all events/information, first to stock exchange(s), as soon as reasonably practicable and not later than 24 hours of occurrence of event/information.
It has added that disclosure of outcome of board meetings shall be made within 30 minutes of the closure of the meeting.
The regulator said the listed entities shall disclose on its website all events/information which is material and such information shall be hosted for a minimum period of five years and thereafter as per the archival policy of the listed entity, as disclosed on its website.
It has also asked listed firms to disclose all events or information with respect to subsidiaries which are material for the listed parent.
SEBI also set some working guidelines on identifying if a development is 'material' and added that it will specify an indicative list of information which may be disclosed upon occurrence of an event.
Framework for GIFT
SEBI also gave approval for implementation of SEBI (International Financial Service Centre) Guidelines, 2015 after the government’s announcement of Gujarat International Finance Tec-City (GIFT) in the Budget presented last month. "These guidelines facilitate and regulate financial services relating to securities market in an International Financial Services Centre (IFSC) set up under Section 18(1) of Special Economic Zones Act, 2005 and matters connected therewith or incidental thereto," SEBI said.
The new norms are expected to open up the market for foreign stock exchanges, clearing corporations and depositories to set up subsidiaries within the IFSC space subject to certain relaxed norms on shareholding and net worth.
The SEBI also laid down rules for mutual funds and Alternative Investment Funds to invest in securities listed in IFSC, securities issued by companies incorporated in IFSC and securities issued by foreign issuers.
(Edited by Joby Puthuparampil Johnson)