SEBI amends open offer norms to protect minority shareholders

In a bid to safeguard interests of minority shareholders, the Security and Exchange Board of India (Sebi) has introduced changes in the open offer norms. Following this, Seni has stopped automatic exemption concerning individuals other than lenders, from making an offer for acquisition in debt restructuring schemes.

The discontinuation of exemption will be implemented on the resolution before it undergoes the Insolvency and Bankruptcy Code (IBC). Once under it, open offer obligations need to be made. In a scenario with no open offers, lenders and strategic investors may sway the resolution in their favour leading to unfairness to minority shareholders.

Automatic exemptions from open offers in the pre-IBC resolution have implications. For instance, minority investors could feel vulnerable. Also, misgovernance issues might crop up in the target company. Such issues might never come to the public’s notice if there are automatic exemptions from open offer obligations.

In 2015, Sebi had granted an exemption to banks, financial institutions and other secured lenders under its strategic debt restructuring initiative. In 2017,  Sebi introduced this exemption to lenders and investors that hold stakes in distressed firms.

In February 2018, however, the RBI repealed all the existing circulars concerning corporate debt restructuring. Exemptions given by Sebi relied on the debt restructuring framework prescribed by RBI. As the primary framework for granting exemptions ceased to exist, Sebi found it logical to discontinue the exemptions.

Sebi has, therefore, amended the Takeover Regulations and ICDR Regulations to present the actual scenario. Still, the concerned entity may approach Sebi to seek relaxation from making an open offer under the Takeover Regulations.

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