SEBI says SWAGAT to investors

– Team Corplaw | corplaw@vinodkothari.com

– Approves major proposals easing institutional investments in IPOs, minimum offer size for larger entities, AIF entry, increased threshold for related party transaction approvals etc.

Relaxed norms for Related Party Transactions 

• Introduction of scale-based threshold for materiality of RPTs for shareholders’ approvals based on annual consolidated turnover of the listed entity

Annual Consolidated Turnover of listed entity (in Crores)	Approved threshold (as a % of consolidated turnover)
< Rs.20,000	10%
20,001 – 40,000	2,000 Crs + 5% above Rs. 20,000 Crs
> 40,000	3,000 Crs + 2.5% above Rs. 40,000 Crs

• Revised thresholds for significant RPTs of subsidiaries
  • 10% of standalone t/o or material RPT limit, whichever is lower.
• Simpler disclosure to be prescribed by SEBI for RPTs that does not exceed 1% of annual consolidated turnover of the listed entity or Rs. 10 Crore, whichever is lower. ISN disclosures will not apply.
• ‘Retail purchases’ exclusions extended to relatives of directors and KMPs, subject to existing conditions 
•  Inclusion of validity of shareholders’ approval as prescribed in SEBI circular dated 30th March 2022 and 8th April, 2022 
• Rationale (See Consultation Paper)
  • Read detailed article – Relaxed Party Time?: RPT regime gets lot softer

Relaxation in thresholds for Minimum Public Offer (MPO) and timelines for compliance Minimum Public Shareholding (MPS) for large issuers (issue size of 50,000 Cr and above)

• Reduction in MPO requirements for companies with higher market capitalisation 
• Relaxed timelines for complying with MPS
• Post listing, the stock exchanges shall continue to monitor these issuers through their surveillance mechanism and related measures to ensure orderly functioning of trading in shares 
• Applicable to both entities proposed to be listed and existing listed entities that are yet to comply with MPS requirements 
• Following changes recommended in Rule 19(2)(b) of Securities Contracts (Regulation) Rules, 1957: 

Post-issue market capitalisation (MCap)	MPO requirements		Timeline to meet MPS requirements (25%)
	Existing provisions	Post amendments	Existing provisions	Post amendments
≤ 1,600 Cr	25%		NA
1,600 Cr < MCap ≤ 4,000 Cr	400 Crs		Within 3 years from listing
4,000 Cr < MCap ≤ 50,000 Cr	10%		Within 3 years from listing
50,000 Cr < MCap ≤ 1,00,000 Cr	10%	1,000 Cr and at least 8% of post issue  capital	Within 3 years from listing	Within 5 years from listing
1,00,000 Cr < MCap ≤ 5,00,000 Cr	5000 Cr and  atleast 5% of post issue  capital	6, 250 Cr and 2.75% of post issue  capital	10% – within 2 years 25% – within 5 years	If MPS on the date of listing <15%, then15% – within 5 yrs25% – within 10 yrs If MPS >15% on the date of listing, 25% within 5 yrs
MCap > 5,00,000 Cr		15,000 Cr and 1%of post issue  capital, subject to minimum dilution of 2.5%		If MPS on the date of listing <15%, then15% – within 5 yrs25% – within 10 yrs If MPS on the date of listing  >15%, 25% within 5 yrs

• Rationale (see Consultation Paper):
  • Mandatory equity dilution for meeting MPS requirement may lead to an oversupply of shares in case of large issues; 
  • Dilution may impact the share prices despite strong company fundamentals. 

Broaden participation of institutional investors in IPO through rejig in the anchor investors allocation

• Following changes recommended in Schedule XIII of ICDR Regulations.
  • Merge Cat I and II of Anchor Investor Allocation to a single category of upto 250 crores. Minimum 5 and maximum 15 investors subject to a minimum allotment of ₹5 crore per investor.
  • Increasing   the   number   of   permissible  Anchor Investor allottees for allocation above 250 crore in the discretionary allotment –  for every additional ₹250 crore or part thereof, an additional 15 investors (instead of 10 as per erstwhile norms) may be permitted, subject to a minimum allotment of ₹5 crore per investor. 
  • Life insurance companies and pension funds included in the reserved category along with domestic MF; proportion increased from 1/3rd (33.33%) to 40%
    • 33% for domestic MFs
    • 7% for life insurance companies and pension funds
      • In case of undersubscription, the unsubscribed part will be available for allocation to domestic MF.

• Rationale (See Consultation Paper)
  • Increase in permitted investors:
    • To ease participation  for  large  FPIs  operating  multiple  funds with  distinct  PANs,  which  currently  face  allocation  limits  due  to  line  caps
    • Given the recent deal size, most  issuances  fall  within  the  threshold  of Cat II  or  higher, limiting the relevance of Cat 1, therefore merge Cat 1 and Cat II
  • Including life insurance companies and pension funds:
    • Growing interest in IPOs, the amendment will ensure participation and diversify long term investor base.

Clarifications in relation to manner of sending annual reports for entities having listed non-convertible securities [Reg 58 of LODR]

• For NCS holders whose email IDs are not registered
  • A letter containing a web link and optionally a static QR code to access the annual report to be sent
    • Instead of sending hard copy of salient features of the documents as per sec 136 of the Act 
    • Aligned with Reg 36(1) (b) of LODR as applicable to equity listed cos
    • Currently, temporary relaxation was given by SEBI from sending of hard copy of documents, provided a web-link  to  the  statement  containing  the  salient  features  of  all  the documents is advertised by the NCS listed entity 
• Timeline for sending the annual report to NCS holders, stock exchange and debenture trustee
  • To be specified based on the law under which such NCS-listed entity is constituted 
  • For e.g. – Section 136 of the Companies Act specifies a time period of at least 21 days before the AGM.

Light touch regulations for AIFs that are exclusively for Accredited Investors and Large Value Funds

• Introduction of new category of AIFs having only Accredited Investors 
• Reduction of minimum investment requirements for Large Value Funds (LVFs) from Rs. 70 crores to Rs. 25 crores per investor 
• Lighter regulatory framework for AIs – only/ LVFs 
• Existing eligible AIFs may also opt for AI only/ LVF classification with associated benefits
• Rationale: see Consultation Paper 

Read detailed article: Proposed Exclusivity Club: Light-touch regulations for AIFs with accredited investors

Facilitating investments in REITs and InVITs

• Enhanced participation of Mutual Funds through re-classification of investment in REITs as ‘equity’ investments, InVITs to continue ‘hybrid’ classification
  • Results in REITs becoming eligible for limits relating to equity and equity indices 
  • Entire limits earlier available to REITs and InVITs taken together now becomes available to InVITs only
• Rationale (see Consultation Paper)
  • In view of the characteristics of REIT & InVITts and to align with global practice
• Expanding the scope of ‘Strategic Investor” & aligning with QIBs under ICDR
  • Extant Regulations cover: NBFC-IFCs, SCB, a multilateral and bilateral development financial institution, NBFC-ML & UL, FPIs, Insurance Cos. and MFs.
  • Scope amended to include: QIBs, Provident & Pension funds (Min Corpus > 25Cr), AIFs, State Industrial Development Corporation, family trust (NW > 500 Cr) and intermediaries registered with SEBI (NW > 500 Cr) and NBFCs – ML, UL & TL
  • Relevance of Strategic Investors: 
    • Invests a min 5% of the issue size of REITs or INVITs subject to a maximum of 25%. Investments are locked in for a period of 180 days from listing
    • Such subscription is documented before the issue and disclosed in offer documents
  • Rationale: see Consultation Paper
    • to attract capital from more investors under the Strategic Investor category
    • to instil confidence in the public issue

SWAGAT-FI for FPIs: relaxing eligibility norms, registration and compliance requirements

• Registration of retail schemes in IFSCs as FPIs alongside AIFs in IFSC
  • Both for retail schemes and AIFs, the sponsor / manager should be resident Indian
• Alignment of contribution limit by resident indian non-individual sponsors with IFSCA Regs
  • Sponsor contributions shall now be subject to a maximum of 10% of corpus of the Fund (or AUM, in case of retail schemes)
• Overseas MFs registering as FPIs may include Indian MFs as constituents
  • SEBI circular Nov 4, 2024 permitted Indian MFs to invest in overseas MFs/UTs that have exposure to Indian securities, subject to specified conditions
• SWAGAT for objectively identified and verifiably low-risk FIs and FVCIs
  • Introduction of SWAGAT-FI status for eligible foreign investors
    • Easier investment assess
    • Unified registration process across multiple investment routes
    • Minimize repeated compliance requirements and documentation
  • Eligible entities (applicable to both initial registration and existing FPIs):
    • Govt and Govt related investors: central banks, SWFs, international / multilateral organizations / agencies and entities controlled or 75% owned (directly or indirectly) thereby
    • Public Retail Funds (PRFs) regulated in home jurisdiction with diversified investors and investments, managed independently: MFs and UTs (open to retail investors, operating as blind pools with diversified investments), insurance companies (investing proprietary funds without segregated portfolios), PFs
  • Relaxation for SWAGAT-FIs
  • Option to use a single demat account for holding all securities acquired as FPI, FVCI, or foreign investor units, with systems in place to ensure proper tagging and identification across channels

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Relaxed Party Time?: RPT regime gets lot softer

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