SAST amendments brought by SEBI

-imposes a complete prohibition on a fugitive economic offender

By Munmi Phukon (

SEBI on 11th September, 2018 has notified the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulations, 2018[1]. The key changes are highlighted below:

Chapter I- Preliminary

[Reg. 2(1)]- Definitions

Clause (j)- Frequently traded shares

As per existing definition, the traded turnover of the shares (to be treated as frequently traded shares) was required to be determined during the period of 12 calendar months preceding the month in which public announcement is made.

Now, the period of 12 months will be calculated from the month preceding the month in which the public announcement was actually required to be made.  Therefore, even in case of failure to make an open offer, the 12 months shall be counted from the month in which the offer was required to be made.

Insertion of new clause (ja)- Definition of fugitive economic offender”

To mean an individual who is declared a fugitive economic offender under section 12 of the Fugitive Economic Offenders Act, 2018 (17 of 2018).

The insertion of the definition is in relation to the new Reg. 6B which is covered below.

Chapter II- Substantial Acquisition of Shares, Voting Rights or Control


Reg. 5A- Delisting offer

The existing proviso to the Regulation provides that an upfront declaration of the intention to delist the shares of the target company is required to be made at the time of publication of the detailed public statement. In order to bring more clarity, the said proviso has been amended to specifically provide that any subsequent declaration of delisting shall not suffice.

Insertion of new Reg. 6B- Prohibition applicable to fugitive economic offender

The new Reg. is different from Reg. 6A inserted vide SAST (Second Amendment) Regulations, 2016 which is applicable to a wilful defaulter. Reg. 6A prohibits a wilful defaulter to acquire shares or enter into any transaction that would attract the obligation to make a public announcement of an open offer for acquiring shares under these regulations. Evidently, the restriction is to acquire so much of shares or to enter into any transaction which in turn shall require making of a public offer. Further, a wilful defaulter has been made eligible to make a competing offer in accordance with the regulations.

On the other hand, fugitive economic offender has been completely prohibited from making a public announcement of an open offer or making a competing offer for acquiring shares or entering into any transaction, either directly or indirectly, for acquiring any shares or voting rights or control of a target company. Therefore, the prohibition is not only on making an open offer or competing offer but on any acquisition.

Reg. 7(2)- Offer size for voluntary offer

The existing Reg. provided the minimum offer size to be additional 10% of total shares of the target company. The same has now been linked to voting rights and accordingly, minimum offer size for voluntary offer shall be for additional 10% of the voting rights.

Reg. 10- General exemptions from making an open offer

Clause (a) of Reg. 10(1) provides exemption to inter se transfer between certain categories of persons including transfer among group companies being holding- subsidiary, fellow subsidiary etc. An explanation to the said clause has been inserted to bring clarity that the company as referred to in the clause shall include a body corporate.

CHAPTER – III- Open Offer Process


Reg. 17(3)- Form of escrow account

An explanation has been inserted under the Reg. explicitly mentioning that the cash component of the escrow account may be maintained in an interest bearing account, subject to the merchant banker ensuring that the funds are available at the time of making payment to the shareholders.

Reg. 18(2)- Mode of sending of letter of offer

An explanation has been inserted to provide electronic mode as the eligible mode of sending letter of offer to the shareholders. However, on receipt of a request, a physical copy shall have to be issued from any shareholder to receive a copy of the letter of offer in physical format, the same shall be provided. The letter if offer shall specifically mention the same.



SEBI ICDR Regulations, 2018– Snapshot on changes in rights, bonus, QIP and preferential issue

SEBI amends LODR in relation to listing of Security Receipts

By CS Vinita Nair (

Aligns with recent amendment made in SEBI regulations for listing of Securitised Debt Instruments

SEBI has notified amendments to LODR Regulations vide SEBI (Listing obligations and Disclosure Requirements) (Fifth Amendment) Regulations, 2018[1] (‘Present Amendment’) dated September 6, 2018 and has aligned the said regulations with the amendments made in SEBI (Public Offer and Listing of Securitised Debt Instruments) (Amendment) Regulations, 2018 dated June 26, 2018[2]. Read more

Will SEBI succeed in trying to create a much needed vibrant Bond Market?

By Rajeev Jhawar ( [Updated as on November 27, 2018]

In a vibrant market, resides a healthy economy. On the Budget day, India sought to expand its bond market beyond the traditional ambit of sovereign debt. In pursuant to this, Securities and Exchange Board of India(SEBI) has initiated to diversify borrowings of Indian corporates by mandating to raise at least a quarter of their incremental funds from the bond market.

The regulator came out with a circular dated 26 November 2018, based on the concept paper released on 20 July,2018; targeting all listed entities (whose specified securities, or debt securities or non-convertible redeemable preference share are listed on SEBI’s recognized stock exchange) thereby addressing the liquidity problem persisting in the bond market, with an intention to create a robust secondary market for the debt securities in India.

For the entities following April-March as their financial year, the framework shall come into effect from April 01, 2019 and for the entities which follow calendar year as their financial year, the framework shall become applicable from January 01, 2020.

The requirements brought by SEBI and corresponding inferences

The regulator proposes that the Large Corporates (LC) that are listed companies (whose specified securities or debt securities or non- convertible redeemable preference shares are listed) (excluding Scheduled Commercial Banks) will have to compulsorily raise 25% of their incremental borrowings (being fresh long term borrowings during the FY) from the bond market in the financial year for which they are being identified as LC, as a part of corroborating the same. The term financial year here would imply April-March or January-December as may be followed by the entity.

As per the circular,large corporates would refer to entities

  • having outstanding long-term borrowings of Rs. 100 crores or above.Further, long term borrowings would mean any outstanding borrowing with original maturity of more than 1 year excluding external commercial borrowings(ECBs) and inter corporate borrowings between a parent and subsidiary and,
  • a credit rating of “AA and above”, where credit rating shall be of the unsupported(unsecured) bank borrowing or plain vanilla bonds of an entity, which have no structuring/ support built in; and in case, where an issuer has multiple ratings from multiple rating agencies, highest of such rating shall be considered for the purpose of applicability of this framework.

Lower rated corporates have been exempted from the framework for the time being due to the limited demand for such securities. It is believed that if the 25% norm is followed religiously, it would tantamount to increase bond flotation as more companies would be able to access the debt market. Besides, the government might limit corporates’ dependence on banks and the risk associated with it. However, there is a need for an expansion in the investor base for implementation of these rules.


There is no secondary market for corporate bonds in India to speak of. The sorry state of affair could be because of illiquid debt market, bad press in case of default, risk averse attitude as well as dearth of investor’s awareness. On the bright aspect, bonds are ideal way to raise financing for a certain kind of long-gestation infrastructure project. Typically, infrastructure projects are capital-intensive and long-gestation. It takes years to roll out toll-roads, build flyovers and set up massive power generating plants. The project developer has no cash flow to service debt until the project is running and banks may not be considered a viable source as bank funding is short tenure, which would result in asset-liability mismatch.

It is also believed that a sound corporate bond market, would take a lot of pressure off banks, which are reeling under bad debts. Retail investors will also get a chance to invest in such projects via debt funds. In short, large exposure to risk would be substantiated with huge rewards.

Further, in order to ensure investors faith in the company, the rating of ‘AA and above’ has been given preference as corporates with such high rating would have less chance to default on its obligations towards the investors which was demonstrated in the consultation paper also.

Impact on Financier’s Interest

The entry barrier for lower rated corporate bonds would be demolished because the proposal might escalate the pool of investment grade issuers. So far, the small borrowers resorted mostly to institutional finance and inter-corporate deposits. The bond avenue would serve as an alternative for them to raise finance at a reasonable price keeping in mind investor’s perpetual keenness to diversify their investments. It may be useful to classify BBB-rated corporate bonds as investment grade and thus allow pension funds and insurance companies to enter that space.

Disclosure requirements for large entities [1]

A listed entity, identified as a Large Corporate(LC) under the instant framework, shall make the following disclosures to the stock exchanges, where its security(ies) are listed:

  • Within 30 days from the beginning of the FY, disclose the fact that they are identified as a LC, in the format as provided in the circular;
  • Within 45 days of the end of the FY, the details of the incremental borrowings done during the FY, in the formats as provided in the circular;
  • The disclosures made shall be certified both by the Company Secretary and the Chief Financial Officer, of the LC;
  • Further, the disclosures made shall form part of audited annual financial results of the entity.


The LCs would need to disclose non-compliance as part of “continuous disclosure requirements”.For FY 19-20 & 20-21, the aforesaid requirement has to be met on an annual basis as on the last day of the FY.In case of failure, explanation as regards to the shortfall has to be made to the stock exchange (SE).

For FY 19-20 & 20- 21, no penalty but explanation will be required.From FY 21-22 onward, the minimum funding requirement has to be met over a block of 2 years. In case of any shortfall of the first year of the block is not met as on the last day of the next FY of the block, a monetary penalty of 0.2% of the shortfall amount shall be levied and paid to SE.The manner of payment of the penalty has not been provided in the Circular but SEs are expected to bring the same.The entity identified as a  large corporate  shall choose any one of the Stock Exchanges (where the securities are listed) for payment of the penalty.

The Stock Exchange(s) shall collate the information about the Large Corporates, disclosed on their platform, and shall submit the same to the Board within 14 days of the last date of submission of annual financial results.

Whether SEBI’s attempt would prove to be a boon or a bane, is likely to be seen as days unfold.


Integrated Reporting

Investor awareness by BSE & NSE- forceful dematerialization

By Munmi Phukon, Smriti Wadehra and Shreya Jain

Currently, the provisions of Regulation 40 of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, facilitate transfer of securities both in physical and dematerialized form. However, SEBI vide its notification dated 8th June, 2018 had notified the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Fourth Amendment) Regulations, 2018[1] by virtue of which it has mandated the processing of transfer of securities only when such securities are held in dematerialised form. The aforesaid amendment shall come into force on the 180th day from the publication of the Amendment Regulations i.e. 5th December, 2018.

Considering the need of the hour, BSE and NSE on 5th July, 2018[2] and 9th July, 2018[3], respectively, has issued two Circulars requiring companies and their RTAs to set up a mechanism for dissemination of information and spreading awareness among various investors about mandatory dematerialization of securities. Though some of the companies have already placed this information in the AGM notices, based on the aforesaid Circulars, the companies are also required to put in place a mechanism including the following in order to spread awareness about the proposed change:

  • The companies through their RTA should send a letter through post to the holders of physical shares and reminding them about the said amendment and also about the impact of the said regulation on transfer of the said physical format shares w.e.f. December 5th, 2018.
  • Atleast two reminders by RTAs is advised to be sent to in a gap of 30 days to the all those shareholders who are holding their shares in physical format, to get it dematerialized.
  • Companies to disseminate such information on their website intimating the investors about the proposed change and provide appropriate guidance on how to dematerialize their shares.
  • Companies should ensure that the signature cards of all the holders of physical securities are handed over to its RTA at the earliest.

It is understood that the intent of the aforesaid Circulars is to provide for the actionable on the part of the companies so as to inform their respective shareholders to convert their physical shares into demat form at the earliest so that the liquidity of the securities does not get affected. Further, though the NSE Circular is silent but BSE may require a reporting to be made by the companies to the effect of compliance of the aforesaid requirements in a specified format to be prescribed by it by end of September 2018.

To conclude we may say that through such automation the burden of compliance shall be reduced on the part of the Company and in this regard SEBI is enhancing the role of depositories in various activities of the Company. Therefore, the companies should take adequate steps to ensure dematerializing the physical shares before the commencement of this Regulation so as to avoid any last minute hassle.