The Securities and Exchange Board of India (SEBI) no longer considers entities that are not scheduled commercial banks (SCBs) or all India financial institutions (AIFIs) as “lenders” for exemption from a mandatory open offer under regulation 10(1)(i) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (regulations).
The takeover code conferred exemption to mandatory open offer for:
- acquisition of primary shares from a borrower company or secondary shares from lenders pursuant to a debt restructuring scheme under the guidelines issued by the Reserve Bank of India (RBI),
- acquisition of shares, not involving a change of control, in a corporate debt restructuring scheme notified by the RBI, if the scheme has been approved by a special resolution of shareholders,
- conversion of lenders’ debt into equity as a part of a debt restructuring scheme.
On 29 March 2019, SEBI amended the regulations. It deleted the first two exemptions and added an explanation to the third exemption that defined lenders as all SCBs (excluding regional rural banks) and AIFIs. A similar explanation was added to the provision exempting lenders (who acquire securities pursuant to conversion of debt as part of debt restructuring under RBI guidelines) from compliance with the chapter for preferential issue under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. Some of SEBI’s justifications for the amendments were:
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Ambarish is a partner and Mihir Roy is a senior associate at Shardul Amarchand Mangaldas & Co.
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