The fiscal year 2021 will soon end and therefore the Covid-related exemptions, provided by market regulator SEBI, include the promoter’s relief on open offers and the easing of IPO rules that have helped raise money amid the financial crisis caused by the lockdown.
Analysts believe that the exemption has achieved its goal and should end with the onset of normalcy in the country. But others feel that inflation and the financial impact will continue to plague companies in the next financial year, making the case profitable. SEBI has not made any announcements regarding the extension of the exemptions.
The exemption involves a reduction in the obligation to the proprietor who owns more than 25% in the listed company to make an open offer when he raises the price by 10% through creeping acquisition. Also, there is no limit on the acquirer holding more than 25% in the listed company for making an open offer if it acquired the company’s shares 52 weeks ago. SEBI also extended the validity of the approvals to regulate the launch of IPOs and rights issues until March 31st.
These exemptions, along with other factors such as attractive ratings, have led to strong fund growth by companies with the granting of rights, IPOs, and preferential issuances despite closures. “This relaxation is done for two important purposes. First, to facilitate revenue collection during the epidemic because it was expected that most businesses would need emergency funding to address the crisis. Secondly, to reduce the complexity of compliance requirements that required periodic paperwork or the submission of paperwork to shareholders or directors,” said J Sagar Associates partner Vikram Raghani.
Reliance Industries, Mahindra Finance, and Aditya Birla Fashion, among others, introduced their rights offer, while Gland Pharma, Happiest Minds, Burger King, etc., first appeared on the stock market with their IPOs during the epidemic. This release also helped Tata Sons plan to increase Tata Power by 10% through the preferential issue without giving it an open offer.
Law firm Cyril Amarchand Mangaldas partner Mulukul Sharma said certain exemptions such as price volatility of the preferred issue and a reduction in the ban on the post-fund collection were due after the epidemic, not so much as about a year later. However, he thinks that as the financial impact of lockdown is likely to continue to affect companies even in the 2022 fiscal year, exemptions such as those with limited acquisition, eligibility for immediate rights issuance, and limited subscription registration should have continued. That will allow companies to raise money.
Raghani, on the other hand, feels that as businesses and markets become more stable, relaxation cannot be relaxed.
The corporate affairs ministry has allowed companies to hold AGM by holding a video conference until June and December respectively. “With the imminent threat of viral fluctuations and subsequent waves of infection, shareholder meetings will continue to be the norm,” Sharma said.
Dhir and Dhir Associates partner Ashish Pyasi said that the release was intended for the lockdown period, but the number of Covid cases is rising and the norm is still a long way off. Promoting relaxation will add to the pressure on companies.
