Soon, AIFs can buy bad loans directly
Lenders may bypass IBC and sell to funds
The Securities and Exchanges Board of India (Sebi) may soon allow Alternative Investment Funds (AIFs) to directly purchase stressed loans from the lenders to help improve liquidity for the pandemic-hit financial services sector.
Speaking at the Ficci Capital Market summit on Wednesday, Sebi chairman Ajay Tyagi said, "We had initiated a proposal for allowing AIFs to directly purchase the stressed loans from the lenders."
He said the RBI has recently issued a consultation paper on permitting purchase of stressed loans by a wide set of entities. "If allowed, the AIFs would be able to buy out stressed loans of banks and NBFCs, thereby, releasing their locked capital," he said.
Due to the suspension of Insolvency and Bankruptcy Code (IBC) provisions for six months, the companies and the lenders are unable to utilise the IBC framework for resolution.
To help such stressed companies to raise capital through preferential allotment, the Sebi has relaxed the pricing methodology for issues and exempted allottees from open offer obligations.
These relaxed norms can be used for restructuring stressed companies without going through the IBC process, he said.
Further, the Sebi has come out with several relaxations to facilitate fundraising by the corporates during these times.
These relaxations relate to rights issue, follow-on offer, qualified institutional placements, creeping acquisition of shares by promoters and easier pricing framework for allotment of shares through preferential issue, he added.
According to him, many corporates have already used or are in the process of using these relaxations to raise funds to meet their requirements.
Tyagi mentioned about the challenges faced by corporates because of the unprecedented pandemic, adding that the Covid-19 situation has pushed many companies into stress and worsened it for already stressed companies and such firms are finding it difficult to raise funds from the market.
He said funds raised during Q1FY21 were Rs 2.77 lakh crore as compared to Rs 2.94 lakh crore during Q1FY20. For equity mopup. the comparison between the two periods was Rs 0.67 lakh crore versus Rs 1.28 lakh crore. For debt, it was Rs 2.1 lakh crore versus Rs 1.67 lakh crore.
"Thus the overall situation is not all that bad, especially considering that fund raising this year started only from May onwards. There is no cause for despair," he said.
Tyagi said that overseas listing of companies will depend on two crucial policy interventions, on the Foreign Exchange Management Act and on the Income Tax Act.