The Securities and Exchange Board of India will relax pricing rules for shares of the scandal-ridden computer company
The Securities and Exchange Board of India (SEBI) has paved the way for fraud-hit Satyam Computer Services to issue preferential shares to a strategic investor at a price which can be lower than what rules allowed till now.
At present, the pricing of a preferential issue is based on the average price of the stock for two weeks or six months, whichever is higher, from the relevant date (which is 30 days prior to shareholders' approval). This can now be relaxed, possibly to two weeks average price.
Recently, the capital market regulator had tweaked the takeover regulations for companies, the boards of which have been superseded by the government to prevent competitive bidding while an open offer is underway. The move was understandably aimed at making it easier for the government-appointed board of Satyam to bring in an investor for the troubled firm.
On Tuesday, SEBI followed up with another communication to allow a relaxation in the pricing of the preferential allotment. Any company, which plans to acquire Satyam, will have to invest in preferential shares and subsequently make an open offer.
Besides addressing specific issues that could concern Satyam, the SEBI circular has also given more flexibility to corporates wishing to raise capital. Some of the steps include:
Till now, a company had to update its red herring prospectus and float an IPO, or make a preferential allotment within three months of SEBI giving its observations, failing which it had to make a fresh filing. The validity period has now been extended to 12 months, thereby giving companies time to wait till the market improves.
The regulator has also allowed companies to issue to the public less than 25% of the equity and also stay listed in case the securities issued are equity shares with differential rights and warrants issued along with non-convertible debentures, offered through rights or bonus.
SEBI has also raised the upfront amount payable by an investor, subscribing to warrants from 10% of the price fixed to 25%. The move is intended to deter the practice of promoters issuing warrants to themselves at low rates in a booming market and then backing out when a downturn sets in.