The Securities and Exchange Board of India (“SEBI”) introduced the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 2018 (the “SEBI Regulations”) with effect from September 11, 2018, which govern buy-backs undertaken by a listed company.
A listed company’s shares and other specified securities can be bought back using any of the following methods:
Continue Reading Open Market for Buy-Backs: Key Considerations
The Finance Minister, Nirmala Sitharaman, presented the Union Budget 2020-2021 on February 1, 2020 and consequently, introduced the Finance Bill, 2020 (“Bill”) in the Lok Sabha. The Bill comprises the financial proposals, including taxation related proposals, to amend the provisions of the Income-tax Act, 1961 (“Income-tax Act”) for the financial year 2021.
The Income-tax Act comprised provisions in relation to the taxability of, and exemptions available to, infrastructure investment trusts (“InvITs”) and real estate investment trusts (“REITs”, together with “InvITs”, referred to as “business trusts”) registered with the Securities and Exchange Board of India under the Securities Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 (“InvIT Regulations”) or the Securities Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 (“REIT Regulations”), respectively.
Continue Reading Implications of the Finance Bill, 2020 on INVITs, REITs and its Unitholders
A regulatory environment that supports robust secondary market disclosures is critical for a well-functioning securities market. Ongoing disclosures by listed companies are being increasingly scrutinised by regulators, stock exchanges and market participants to see if timely and accurate disclosures of all material information are being made by the listed entity. Accordingly, it is important for companies to ensure that developments in their businesses translate to appropriate regulatory disclosures.
A recent example of the importance of secondary market disclosure is the Facebook case. In 2019, the US Securities and Exchange Commission (“SEC”) announced charges against Facebook Inc. (“Facebook”) for making misleading disclosures in its periodic filings against the risks pertaining to misuse of its user data by third parties. The SEC alleged that in public disclosures, Facebook presented the risk of misuse of user data as “merely hypothetical”, when they were aware that a third-party developer had actually misused Facebook user data. The SEC press release states that Facebook has agreed to pay $100 million to settle the charges.
We discuss this development and learnings for the Indian market below.
Continue Reading Continuous Disclosure Obligations: Learnings for the Indian Securities Market
The SEBI has streamlined certain aspects of the rights issue process that is expected to not only reduce the timelines but also provide clarity on the renunciation and trading of rights entitlements. These are welcome changes and will potentially make rights issues a preferred option to raise capital for listed companies.
Whilst rights issues are offerings to existing shareholders, it typically takes 55 to 58 days to complete the process (excluding SEBI review and the time taken for due diligence and drafting the offer document). The process involves (i) a minimum 15-day rights issue application period, (ii) mandatory participation by certain investors only through the non-ASBA process (such as through cheque) and (iii) a seven clear working days intimation prior to the record date. SEBI has addressed some of these concerns through amendments to the SEBI ICDR Regulations, SEBI Listing Regulations (both effective from December 26, 2019) and a circular with effect from February 14, 2020.
Continue Reading SEBI Streamlines Rights Issue Process
On November 14, 2019, almost a decade after the initial public offering of Electrosteel Steels Limited (Electrosteel), the Securities Appellate Tribunal (SAT) delivered its judgment in Electrosteel Steels Limited v. Securities and Exchange Board of India[1] (the SAT Order). It partially upheld the judgment dated March 31, 2016 (SEBI Order) of the adjudicating officer of the Securities and Exchange Board of India[2] (SEBI). The SAT Order has discussed the concept of ‘materiality’ in the context of disclosure in offer documents.
Continue Reading To Disclose or Not to Disclose? An Analysis of the Order of the Securities Appellate Tribunal in Electrosteel Steels Limited v. Securities and Exchange Board of India
The Securities and Exchange Board of India (SEBI) has introduced a framework for issuance of depository receipts (DRs) by companies listed or to be listed in India ( DR Framework), by its circular dated October 10, 2019.
In the early years of liberalisation and up to the time SEBI permitted qualified institutions placement (QIPs) in 2006, DR issuances formed a significant and important part of foreign investment into the Indian equity markets. However, in the past five years, there have been very few DR issuances, for a variety of reasons including due to regulatory uncertainty around operational guidelines for DRs and concerns in relation to compliance with rules under the anti-money laundering legislation.
Continue Reading SEBI Introduces Framework for Issuance of Depository Receipts
Last month, the Securities Appellate Tribunal (SAT) passed an order in favour of Factorial Master Fund[1] (Factorial). This overturned the order of the SEBI Whole Time Member who had held that Factorial had contravened the provisions of the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) by trading in the securities of L&T Finance Holdings Limited (LTFH), while in possession of unpublished price sensitive information (UPSI).Continue Reading The Sound of SEBI’s Silence: Will the Factorial Order Change the Rules of the Game?
Financial investors in India are scared of regulatory uncertainties. Not that uncertainties are exclusive to our country but it’s a critical risk factor that is assessed by those making substantial investments. Historically, one of the most important regulatory concerns for such investors is related to being categorised as ‘promoter’ of a listed company, both when the company is going public and also in cases where a private equity (PE) player intends to take a control position in an already listed company, by replacing its present promoters or by becoming co-promoters. Promoter liability theories have kept such investors away from taking control positions in listed companies. On the contrary, in the unlisted space where the promoter position is perceived differently, control deals are a way of life for certain PE funds in India.
Continue Reading New Promoters on the Block: The Financial Investors
Over the years, companies have used employee stock option schemes (ESOP Schemes) as an effective method to align employee interests with shareholders, reward their efforts, increase their loyalty towards the company and motivate employees to perform better.
An initial public offering (IPO) and consequent listing of equity shares is one of the critical ways in which employees seek value appreciation in stock options and equity shares held by them. Accordingly, unlisted companies typically align timing of exercise of options under ESOP Schemes with their plans to undertake an IPO.
The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended (SEBI ICDR Regulations), which regulates IPOs, provides exceptions for ESOPs from certain eligibility conditions to be fulfilled by the issuer undertaking the IPO as well as transfer restrictions on equity shares applicable after the completion of the IPO.
However, issuers have faced challenges in the past with respect to eligibility conditions if the options have remained outstanding with individuals who have ceased to be an employee of the issuer.
Further, issuers are being increasingly questioned by such former employees, who continue to hold shares in the issuer but are not offered lock-in exemptions available to existing employees. Additional basis to these concerns is that former employees are treated beneficially under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 (ESOP Regulations) and the Companies Act, 2013 and similar benefits have not been recognised under the SEBI ICDR Regulations.Continue Reading Survival of Employee Stock Options through the IPO process: Are former employees stranded?
The Securities Exchange Board of India (SEBI) has, over the years, undertaken initiatives to align reporting and disclosure requirements for listed companies in India with global standards, including alignment with the principles prescribed by the International Organization of Securities Commissions. On February 6, 2017, SEBI issued a circular on Integrated Reporting by Listed Entities (SEBI Circular) to strengthen disclosure standards of listed Indian companies.
What is Integrated Reporting?
Integrated reporting is a principle-based reporting framework that was developed by the IIRC. Companies in various countries globally including Japan, the United Kingdom and Australia have adopted integrated reporting.
The primary purpose of an Integrated Report is to provide stakeholders with details in relation to the following: (i) functioning of an organisation; (ii) the value created by an organisation over time; and (iii) various external factors that affect the organisation. The Framework sets out certain fundamental concepts and guiding principles that should be considered while preparing an Integrated Report.Continue Reading Streamlining Reporting Standards