SEBI changes preferential allotment rules

SEBI’s board had earlier approved certain changes regarding valuation in the preferential allotment. As per the new norms, any change of control resulting in the allocation of preferential issue would require a committee of independent directors to provide a reasoned recommendation along with their comments on all aspects of preferential issuance, including pricing.

The over-reliance on valuation certificates, the approval of the committee of independent directors, and the order to comply with the articles of association comes in the wake of PNB Housing Finance.

This comes against the backdrop of the proposed allotment of preference shares by PNB Housing Finance to US-based Carlyle Group and hurdles from a bunch of other investors.

SEBI had questioned the propriety of fixing the issue price of PNB Housing Finance.

To this effect, the regulator has amended the ICDR (Issue of Capital Disclosure Requirements) rules.

For promoters, SEBI said the lock-in requirement for allotment of up to 20 per cent of post issue paid-up capital has been reduced to 18 months from the existing 3 years.

The lock-in requirement has been reduced to 6 months from the existing 1 year for allocation of more than 20% of the post issue paid-up capital.

SEBI said that for non-promoters, the lock-in requirement for allotment will be reduced from 1 year to 6 months.

“The lock-in requirements for an allottee who has become a promoter by reason of a change of control as a result of a preferential issue, shall be the same as applicable to the promoters and the promoter group,” the notification issued on January 14 said.

The regulator said promoters have been permitted to pledge locked-in shares after a preferential issue, provided the pledge of such securities is one of the conditions for sanction of loan given by a financial institution.

In addition, the debt is to be sanctioned to the issuing company or its subsidiaries for financing the items of preference issue, SEBI said.

The regulator also said that for a preferential issue, “other than cash” would be allowed only for share swaps backed by valuation report from an independent registered valuer. The issuing company has to compulsorily apply for in-principle approval from the stock exchanges on the same day as the date of sending the notice for AGM or EGM to the shareholder.