SEBI seeks to ease preferential issue norms

Our Bureau | | | Updated on: Nov 26, 2021
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After PNB HF-Carlyle deal fiasco, regulator proposes new pricing formula

After the fiasco involving ₹4,000 crore preferential issue of PNB Housing Finance to private equity major Carlyle, markets regulator SEBI has now decided to ease norms for preferential issue pricing of shares.

PNB HF and Carlyle had to call-off the deal due to regulatory hassles over the pricing of preferential issues. Proxy advisory firm SES had said that PNB HF was giving preferential shares to Carlyle at lower value than the market price, following which SEBI had questioned the deal.

New pricing formula

SEBI has proposed that the pricing formula for the allotment of shares under preferential issues should be based on volume-weighted average price (VWAP) of weekly highs and lows of a stock for 60 trading days or 10 trading days, whichever is higher. SEBI has sought public opinion on its proposal.

At present, the pricing formula in a preferential allotment is the VWAP of the last two weeks or the last 26 weeks, whichever is higher. SEBI has recommended replacing average weekly high and low VWAP of 2 weeks with VWAP of 10 trading days to maintain consistency in pricing for companies having stressed assets.

Allowing pledging of shares

SEBI has also proposed to allow pledging of shares allotted to promoter or promoter group under preferential issue during the lock-in period. There is a three-year lock-in for preferential shares, during which they cannot be sold. SEBI has also said that any preferential issue allotment resulting in change in control should be done following a reasoned recommendation from a committee of independent directors.

SEBI proposed that lock-in for preferential issuance to promoters/promoter group should be reduced from 3 years to 18 months and for preferential issuance to persons other than promoter or promoter group, the lock-in should be reduced from 1 year to 6 months in similar lines with the lock-in applicable to public issues. SEBI has also proposed to allow promoters or entities close to them getting preferential allotment to pledge their shares with banks and financial institutions.

“It is argued that there is a significant difference in the price determined on the basis of 26 weeks’ average vis-a-vis 2 weeks’ average. This may act as a deterrent for the promoters or existing willing investors to come to the side of the company in times of need,” SEBI said.

Published on November 27, 2021

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