Sebi eases rules for firms to raise funds

MUMBAI: The markets regulator on Tuesday relaxed norms for preferential sale of shares to make it easier for publicly traded companies to raise funds amid widespread financial pain because of the devastation caused by coronavirus.

The Securities and Exchange Board of India (Sebi) amended the takeover code for the financial year 2020-21 to allow promoters to buy as much as 10% through a preferential allotment.

Till now, promoters could buy only up to 5% through a preferential issue. The Sebi relaxation will help promoters bring more capital into their companies at a time when other investors may not be too comfortable to invest given the economic uncertainties arising out of the Covid-19 pandemic.

“There are many discussions going on in the market where promoters want to bring in money into the company and this move will aid those discussions.

These are difficult times for companies, as there is a lot of uncertainty on what the financial numbers for FY21 will look like. So if in this market, the promoter puts in money into the company then that sends a strong signal to the market and gives comfort to other investors to put money in that stock,” said Ajay Garg, managing director, Equirus Capital.

A preferential issue is a sale of shares or convertible securities by listed or unlisted companies to a select group of investors.

It is considered to be the fastest way of raising capital. This relaxation of preferential allotment norms will also protect companies from the threat of takeovers. In a separate gazette notification, Sebi also reduced the time gap between two qualified institutional placements from 6 months to two weeks.