Sebi (Securities and Exchange Board of India) has decided to increase the permitted acquisition in holding from previous 5 per cent to now 10 per cent for promoters through creeping acquisition without triggering an open offer. The decision has been taken to help locally listed companies to access funds in current COVID Situation and is only a one-time relaxation facility.
The decision taken under the takeover code will help to infuse funds to the companies that need liquidity during this financial year. Also, the hiatus between two qualified institutional placements (QIPs) has been reduced to two weeks from six months, by Sebi. The decision is expected to help companies get regular access to investment from institutional investors. QIPs are preferred by companies to raise funds because they provide an efficient way to acquire funds.
BDO India’s tax and regulatory services partner, Nitesh Mehta said, “This does not allow promoters to do creeping acquisition through the secondary market. This can only be used if promoters are subscribing in a primary issue where the money goes into the company through a preferential allotment.” And added, “Having said this, this relaxation certainly allows promoters to raise their holding in the company without triggering an open offer”.
Creeping acquisition is allowed through secondary market purchases and primary issues. For acquisition made during FY21, one-time relaxation has been given by Sebi.
Cyril Amarchand Mangaldas’s head and partner of M&A, Akila Agarwal said, “The amendment will enable promoters to provide necessary equity funds to their company without incurring an obligation of the open offer”. Adding,” This is especially important as companies are finding it difficult to access alternative methods of funding such as debt financing, etc., or access equity funding from third-party investors. It will be interesting to see whether limited relaxation of only an additional 5 per cent will meet the commercial requirements of companies”.