Introduction

In the SEBI Board meeting held on 22nd March, 2015, the Board approved a proposal, prepared in consultation with RBI, to relax the applicability of certain provisions of the SEBI (ICDR) Regulations, 2009 and the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 to the conversion of debt into equity of listed borrower companies by the lending institutions. This measure was taken to revive the distressed listed borrower companies and make it simpler for lending institutions to acquire control over the company while restructuring, thereby benefitting all stakeholders.

On 5th May, 2015, via Notification No.- SEBI-NRO/OIAE/GN/2015-16/003 and SEBI-NRO/OIAE/GN/2015-16/004, changes were introduced in the SEBI (Issue of Capital and Disclosure Requirements) Regulations (“ICDR Regulations”) and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations (“SAST Regulations”) respectively to bring in force the proposed and approved relaxations for conversion of debt into equity under Strategic Debt Structuring Scheme. This article will provide an overview of such changes introduced.

ICDR Regulations

1. Chapter VII of the ICDR Regulations apply to preferential issue of shares.
2. According to the amendment, the provisions of ICDR Regulations for preferential issue of shares shall not apply to where the preferential issue of equity shares is made to the consortium of banks and financial institutions pursuant to conversion of their debt, as part of the strategic debt restructuring scheme in accordance with the guidelines specified by the RBI. However such exemptions shall be subject to the following conditions:
   • Conversion price shall be decided as per guidelines specified by the RBI for strategic debt restructuring scheme. Such conversion price shall not be less than the face value of the equity shares.
   • Conversion price shall be certified by two independent qualified valuers.
   • Equity shares allotted on conversion of debt shall be locked-in for 1 year from the date of trading approval. However the consortium of banks may transfer such shares within the lock0in period for transfer of control, subject to continuation of the lock-in on such shares for the remaining period with the transferee.
   • Applicable provisions of Companies Act, 2013 are complied with, including the requirement of special resolution.
3. The provisions of Chapter VII shall also not apply when any other secured lenders opt to join the strategic debt restructuring scheme in accordance with the guidelines specified by the RBI and convert their debt into equity share as per the above point 2.

SAST Regulations

1. In the SAST Regulations, in case of certain type of acquisitions, exemption is given from the obligation to make an open offer.
2. Among other acquisitions, in case of acquisition of equity shares by the consortium of banks, financial institutions and other secured lenders pursuant to conversion of their debt as part of the Strategic Debt Restructuring Scheme in accordance with the guidelines specified by the RBI, there is no obligation to make an open offer.
3. Such exemption is subject to the condition that all the conditions under point 2. And 3. above under the ICDR Regulations are fulfilled.