A listed company seeking to make a preferential issue of shares is required to comply with the pricing guidelines in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR”). Regulation 164 of the ICDR stipulates the pricing in case of frequently traded shares and prescribes a minimum price at which the preferential issue is required to be made. It is stipulated that:
On July 1, 2020 the Securities and Exchange Board of India (“SEBI”) notified an amendment to the ICDR by inserting a new regulation 164B.
Henceforth, in case of frequently traded shares, the issuer can opt to determine the price on the basis of regulation 164 or regulation 164B of the ICDR.
Regulation 164B(1) of the ICDR provides that in case of frequently traded shares, the price of the equity shares to be allotted pursuant to the preferential issue can be determined by regulation 164 or regulation 164B of the ICDR, as may be opted for. The look back period for determining the price has been reduced.
As per Regulation 164B, the price of equity shares to be allotted pursuant to the preferential issue shall not be less than the higher of:
This pricing methodology can be availed in case of allotment by preferential issue made between July 1, 2020 and December 31, 2020. Further, specified securities allotted on a preferential basis using the abovementioned pricing methodology has to be locked in for a period of 3 (three) years and all allotments arising out of the same shareholders’ approval is required to follow the same pricing method.
Read the amendment regulations here.
This update has been contributed by Adity Chaudhury (Partner) and Deeya Ray (Associate).
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