1. INTRODUCTION
Over the last few months, the Securities and Exchange Board of India ("SEBI") has offered much-needed relaxations to the companies struggling with disruption caused by COVID-19. With unlock 2.0 being implemented and markets beginning to gain momentum, the capital markets regulator continues to address the challenges faced by listed entities in fund raising. In continuation to its circular dated April 21, 2020 (the 'Rights Issue Circular'),1 SEBI has, by a circular dated June 09, 2020 ("Circular"), granted certain temporary relaxations from certain eligibility conditions for a fast-track further public offer ("FPO") under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, amended ("SEBI ICDR Regulations").2
We discuss below the dispensations granted by SEBI through the Circular.
2. KEY DISPENSATIONS GRANTED TO FURTHER PUBLIC OFFER
The Circular grants certain relaxations in the eligibility conditions related to fast-track FPOs opening on or prior to March 31, 2021. The dispensations provided below are not applicable in case of FPOs of warrants.
2.1 Average market capitalization
The requirement of average market capitalization of public shareholding of issuer has been reduced to INR 500 crores, as opposed to earlier requirement of INR 1,000 crores.3
2.2 Show cause notices
The SEBI ICDR Regulations debar an issuer from undertaking a fast-track FPO if any show cause notices ("SCN") are issued or prosecution proceeding are initiated by SEBI or pending against the issuer, or its promoters or whole time directors.4
The Circular now allows issuers that have outstanding SCNs for adjudication proceedings or pending SEBI prosecution proceedings to avail of the fast-track route. However, the FPO prospectus must contain appropriate disclosures on the pending SCNs or prosecution proceedings, along with their potential adverse impact on the issuer.
2.3 Settlement of securities law violations
If an issuer or its promoters, promoter group or directors have, in the last 3 years, settled violations of securities laws through SEBI's consent mechanism, such issuer is debarred from undertaking a fast-track FPO.5 The Circular relaxes this eligibility condition by allowing the issuer or its promoter, promoter group or director to fulfill the settlement terms or adhere to directions of the settlement order in cases where it has settled any alleged violation of securities laws through the consent or settlement mechanism with SEBI.
2.4 Audit qualifications
An issuer with audit qualifications in the financial statements is debarred from undertaking a fast-track FPO if the impact of audit qualification (if any and where quantifiable) exceeds 5% of its net profit/loss after tax in the respective year.6
The Circular now allows an issuer with audit qualifications to restate financial statements adjusting the impact of audit qualification, in respect of those financial years which are proposed to be disclosed in the offer documents. Further, if the impact of the audit qualifications cannot be ascertained, the issuer may proceed with appropriate disclosures made in the offer documents.
3. CONCLUSION
In the Rights Issue Circular, SEBI had provided decisive exemptions to listed issuers undertaking fast-track rights offerings. As noted in our earlier news alert on the Rights Issue Circular, these exemptions had not been extended to fast-track FPOs. The Circular has, therefore been much awaited - and in particular, by listed issuers who, for commercial exigencies or shareholding nuance, seek the FPO route toward fund-raising.
It should be noted that the Circular does not replicate all of the dispensations granted earlier to fast-track rights offerings to FPOs. For instance, it does not reduce compliance periods for certain eligibility conditions from 3 years to 18 months. Since an FPO is a public offering (and not limited to existing shareholders and renouncees like in rights issues), SEBI may have, in its benevolent avatar, understandably treaded with caution. One hopes that the Circular is successful in reviving interest in FPOs at a time when markets and participants are increasingly seeking out non-traditional windows and routes.
Footnotes
1 SEBI Circular no. SEBI/HO/CFD/DIL1/CIR/P/2020/66 dated April 21, 2020.
2 SEBI Circular no. SEBI/HO/CFD/CIR/CFD/DIL/85/2020 dated June 09, 2020.
3 Reg. 155(c) of the SEBI ICDR Regulations.
4 Reg. 155(h) of the SEBI ICDR Regulations.
5 Reg. 155(i) of the SEBI ICDR Regulations.
6 Reg. 155(l) of the SEBI ICDR Regulations.
Originally published June 11, 2020 .
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