Market regulator SEBI has now implemented a recent decision requiring the monitoring of utilisation of issue proceeds raised through qualified institutions placement (QIP) and preferential issues (PI).

It has brought in necessary amendments to its listing and disclosure requirements (LODR) regulations besides other relevant regulations for this purpose. This monitoring of utilisation of funds raised through QIP/PI will happen in case of issues of over ₹100 crore. 

The latest move is expected to enable shareholders to know the status of the utilisation of funds raised by the company as against  the  disclosed  objective  of  the  funds  mobilised  by  the  issuer company. The monitoring is expected to be done by credit rating agencies. Presently, monitoring  of  utilisation  of  issue proceeds  is  required for  all public and rights issues above ₹ 100 crore. 

It maybe recalled that SEBI Board had in end September decided align the requirements for monitoring of utilisation of issue proceeds for  PI  and  QIP issue  of  size ₹ 100  crore  in  the  same  manner,  as applicable for public and rights issues.

EXPERTS’ TAKE 

Ruby Singh Ahuja, Senior Partner–Karanjawala & Co, said that the new amendment to SEBI regulations brings it at par with the monitoring obligations for public and rights issues which were introduced in December 2021. 

“The objective for raising funds either through public issue or preferential issue is largely the same and thus, it is only fitting that the monitoring obligations also be at par. This is also in tune with the principle that any infusion of funds in the company needs to be monitored”, she added.

The last financial year and current financial year till May 2022, has seen over 20 percent of preferential issues and QIP issues exceeding ₹100 crore, the total such issues raising nearly ₹1.23 lakh crore. “This monitoring requirement will not only placate shareholder anxieties, even though they approve the PI or QIP issue but will also foster stronger investor confidence in the market”, Ahuja added.

Abhimanyu Bhattacharya, Partner, Khaitan & Co, said that SEBI’s decision has been based on the need to introduce transparency given amount of funds which has been raised through these route in the last one and a half years. 

“Monitoring of use of proceeds has been there for IPOs and rights issues for a while and this decision brings QIPs and Pref allotments in parity with the above and introduces more accountability to these modes of fund raising,” Bhattacharya said.

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