Private placement norms for securities issued to QIBs eased

In a significant relief for companies going in for private placement of securities, the Corporate Affairs Ministry (MCA) has now said that companies need not pass special resolution with approval of shareholders every time it issues securities to qualified institutional buyers (QIBs).

It would be sufficient if a company passes a special resolution only once in a year for all the allotments to such buyers (QIB) during the year, MCA has said.

This relaxation for private placement to QIBs comes on top of a similar one provided two years back to companies issuing non-convertible debentures (NCDs) (above a threshold and within borrowing limits) through private placement route, corporate observers said.

Also read: SEBI comes out with uniform timeline for listing securities on private placement basis

The current company law specifies three main modes of raising funds for companies— public issue, rights issue and private placement. For private companies, only two modes — rights issue and private placement, are available. Private placements are generally the most utilised route by private companies, although compliance requirements are tough.

Experts’ take

Gautham Srinivas, Partner, Khaitan & Co, a law firm, said this latest MCA move is an excellent step to ensure fund-raising happens at short notice. “Given the current scenario in the economy, companies will move to raise funds, and therefore, one resolution a year should work and at an opportune time it can be realised on and funds be raised. For listed companies, qualified institutional placements (QIPs) will now become easier and less timeline-driven,” Srinivas told BusinessLine .

Srinath Sridharan, an independent markets commentator, said that the idea of special resolution is to bring any extraordinary or critical matter to the notice of the shareholder. Allowing for companies to pass special resolution in a yearly once mode for allotment of securities to QIBs is a good idea to save time and resources, if the companies can list out the detailed conditions in which such allotment would happen, he said.

Harish Kumar, Partner, L&L Partners, said this MCA relaxation, which is akin to the one presently provided for issuance of NCDs, would further facilitate in meeting immediate funding requirements of the issuer companies via QIB issuance, given that now the companies wouldn’t have to approach the shareholders repeatedly for such issuance.

Raj Bhalla, Partner, MV Kini & Co, said that a company need not get a special resolution passed repeatedly in case of offer or invitation of any securities to QIBs. Once the special resolution has been passed by the shareholders, it is valid for one year and the same is sufficient if the company passes a Board resolution only, Bhalla added.

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