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.

Click here to continue reading . . .

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.