Special Situation Funds (SSFS) For Resolution Of Stressed Assets | Prior Shareholders' Approval Required For Appointment Of Rejected Candidates | SEBI Seeks To Regulate ESG Rating Providers (ERPS)
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SEBI has recently introduced the following significant
changes:
A. SEBI introduces Special Situation Funds (SSFs) for
investment in stressed assets: In order to address the
growing concerns of stressed assets, SEBI has introduced a new
category of Category I Alternative Investment Fund
(AIF), which will invest only in 'special
situation assets' as per the terms and conditions prescribed by
SEBI. There are various regulatory norms introduced for SSFs, which
are analyzed separately. In addition to changes focused on SSFs,
SEBI has exempted large value fundsfor accredited investors from
the requirement of filing private placement memorandums (PPMs)
through merchant banker at least 30 days prior to launch of
schemes.
B. Amendments to SEBI (Listing Obligations and
Disclosure Requirements) Regulations, 2015: Key changes
include the following-
Prior approval of shareholders required for appointment/
re-appointment of directors / manager who failed to earlier get
elected as directors/manager by the shareholders at a general
meeting;
To enhance ease of dealing in securities markets by investors,
it has been decided that listed companies shall henceforth issue
the securities in dematerialized form while processing certain
service requests.
C. SEBI seeks to regulate ESG Rating Providers
(ERPs): In an important move, SEBI is seeking to bring
ERPs within its ambit to ensure transparency and balance the needs
of all stakeholders. With the growing importance of ESG globally,
SEBI feels it is imperative to have a regulated environment of
ERPs, which is currently unregulated. This will have a direct
bearing on anyone looking to procure an ESG rating, including
listed companies, AIFs, mutual funds, etc. Following proposals are
recommended and public views are sought on the same:
Accreditation of ERPs to assign ESG ratings to listed entities
and listed securities and anyone who wish to avail ESG
ratings;
Accreditation criteria for eligible entities such as Credit
Rating Agencies and Research Analysts;
Transparency requirements and disclosures required to be made
by ERPs;
Governance structures of ERPs and prevention of conflict of
interest;
Proposed business model for ERPs in India.
The above changes have been analyzed below:
Introduction of Special Situation Funds (SSFs)
SEBI has introduced the following amendments to the SEBI
(Alternative Investment Funds) Regulations, 2012 (AIF
Regulations):
Amendment
Analysis / Explanation
Introduction of SSFs as a subcategory
under Category I AIFs
SSFs have been approved as a sub-category under
Category I AIF, which will invest only in 'special situation
assets' and may act as a resolution applicant under the
Insolvency and Bankruptcy Code, 2016 (IBC). This will allow SSFs to
participate in the resolution process contemplated under IBC.
Permitted investments by SSFs | Meaning of
'special situation assets'
In order to drive focus of SSFs towards stressed
assets, it has been specified that SSFs will invest only in special
situation assets. Such assets include:
Stressed loans available for acquisition in terms of Reserve
Bank of India (Transfer of Loan Exposures) Directions, 2021 or as
part of a resolution plan approved under IBC;
Security receipts issued by Asset Reconstruction Companies
(ARC);
Securities of investee companies (i) whose stressed loans
available for acquisition in terms of Reserve Bank of India
(Transfer of Loan Exposures) Directions, 2021 or as part of a
resolution plan approved under IBC; (ii) against whose borrowings,
security receipts have been issued by an ARC; (iii) whose
borrowings are subject to corporate insolvency resolution process
under Chapter II of IBC; (iv) who have disclosed all the defaults
relating to the payment of interest/ repayment of principal amount
on loans from banks / financial institutions;
Any other asset/security as may be prescribed by SEBI from time
to time.
Other features of SSF regulatory
framework
Minimum Corpus: Minimum corpus of the schemes
launched by SSFs to be as specified by SEBI;
Diversification norms: Diversification norms
applicable to Category-I AIF will not apply to SSFs, unless
specified otherwise.
Minimum Investment: Minimum investment by an
investor to be such as may be specified by SEBI;
Restriction on investment: SSFs have been
restricted from investing in (i) its associates, or (ii) units of
any other AIF other than the units of an SSF, or (iii) units of
SSFs managed or sponsored by its manager, sponsor or associates of
its manager or sponsor;
Lock-in period: Any investment by an SSF in
the stressed loan acquired under Reserve Bank of India (Transfer of
Loan Exposures) Directions, 2021 shall be subject to lock-in period
as may be specified by SEBI.
Exemption to large value fund for accredited
investors
In addition to changes focussed on SSFs, SEBI has exempted large
value fund for accredited investors from the requirement of filing
private placement memorandums (PPMs) through
merchant banker at least 30 days prior to launch of schemes and
incorporation of changes.
The aforesaid amendments have been made vide the SEBI
(Alternative Investment Funds) (Amendment) Regulations, 2022 dated
January 24, 2022 (available
here).
Amendments to SEBI (Listing Obligations and Disclosure
Requirements) Regulations, 2015
SEBI has introduced the following amendments to the SEBI
(Listing Obligations and Disclosure Requirements) Regulations, 2015
(LODR Regulations):
Amendment
Analysis / Explanation
Prior approval of shareholders required
for appointment/ reappointment of persons failing to get elected as
directors/managers
SEBI had recently amended LODR Regulations to provide that a
listed entity shall ensure that approval of shareholders for
appointment of a person on the Board of Directors is taken at the
next general meeting or within three months from the date of
appointment, whichever is earlier. SEBI has now made this provision
applicable to a manager also. ▪ Additionally, SEBI has made
the norms stringent for appointment or reappointment of persons
(including as a managing director or a whole-time director or a
manager) who was earlier rejected by the shareholders at a general
meeting. Such appointment/ re-appointment will be done only with
the prior approval of the shareholders.
It has also been provided that statement attached to the notice
for considering such appointment/re-appointment of such a person
earlier rejected by the shareholders shall contain a detailed
explanation and justification by the Nomination and Remuneration
Committee (NRC) and the Board of directors for recommending such a
person for appointment or re-appointment.
Utilization of proceeds of public or
rights issue
Where the listed entity has appointed a monitoring agency to
monitor the utilisation of proceeds of a public or rights issue,
the monitoring report of such agency shall now be required to be
placed before the audit committee on quarterly basis (as against
annual basis provided earlier), promptly upon its receipt.
Issue of securities in dematerialized form
in compliance with investor requests
To enhance ease of dealing in securities markets by investors,
it has been decided that listed companies shall henceforth issue
the securities in dematerialized form while processing the
following service requests:
issue of duplicate securities certificate;
claim from Unclaimed Suspense Account;
renewal / Exchange of securities certificate;
endorsement;
sub-division / Splitting of securities certificate;
consolidation of securities certificates/folios;
transmission;
transposition;
It has been clarified that requests for effecting transfer of
securities would not be processed unless the securities are held in
the demat form with a depository and that transmission or
transposition of securities held in physical or demat form shall be
effected only in demat form.
SEBI has issued detailed process that needs to be followed for
fulfilling such requests.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
