SEBI facilitates promoters to raise capital through preferential allocation

(Commercial Representative) Mumbai, Ta. 17 June 2020, Wednesday

The Securities and Exchange Board of India (SEBI), the regulator of the capital market, has simplified the criteria for raising funds through preferential allotment of shares to promoters of listed companies. The Corona epidemic made it difficult for companies to raise capital as market conditions became difficult in the event of a lockdown. With this in mind, these relief measures have been taken by SEBI.

SEBI has amended the takeover code for the financial year 2020-21 to allow promoters to acquire holdings up to 10 per cent through preferential allotment. Currently promoters can acquire holdings up to only five per cent through a preferential issue. This relief will help promoters make it easier for companies to raise more capital at a time when other investors are reluctant to invest due to financial uncertainty.

There was a lot of discussion in the market that promoters wanted to bring money into the company, now this decision will help these promoters, it was a difficult time for the companies as there was uncertainty about the results-figures for the financial year 2021. So if the promoters bring money to the company in this market, it will send a strong signal to the market.

Preferential issue is a means of raising capital by offering shares or convertible securities to selected group investors by listed or unlisted companies. Which is one of the fastest options for raising capital. The Corona epidemic has caused cash crunch problems for many companies as markets have been shaken.

In a separate gazette notification, SEBI has also reduced the period between the two qualified institutional placements from six months to two weeks. This is also an important relief, as it will help companies to get investment from institutional investors on a regular basis and faster through QIPs.