SEBI’s RELAXATION OVER COMPLIANCE AMIDST COVID-19

The financial market plays a vital role in the smooth operation of capitalist economies. All financial dealings are handled and monitored by Financial Institutions and hence it plays a crucial role in any economy. Prominent Financial Institutions are banks, insurance companies, investment companies, and other specialised financial institutes.

For any business raising capital becomes the most important and challenging task. There are various methods for raising capital and the most preferred way of doing the same for listed companies is a preferential allotment, in preferential allotment a listed issuer issues shares to a selected group of persons. These listed companies are required to comply with various other regulations.

But now as we all know because of the ongoing pandemic, COVID-19, a lot of sectors are adversely affected and the economy is stressed. And this has indeed become a distressing situation for all the business entities and the only way the companies can survive this is by more cash flow and one of the best ways to increase the cash flow is through more number of investments.

But the main concern for the investors is the assurance of returns even while considering the long term. This is because due to the ongoing pandemic there is a lot of uncertainty which makes it complicated for all kinds of investors to invest their funds in companies. Considering this uncertain situation, the Securities Exchange Board of India (SEBI) has given some relaxation to listed entities. These relaxed regulations help companies to perform better which gives more assurance to the investors and reduces the risk factor. Therefore, the relaxations of SEBI were the need of the hour. And this not only helps the companies, but also the economy. When companies are getting better investments, the companies have a better chance of surviving this pandemic and this would stabilise the economy to some extent. Relaxation gives by SEBI are-

Relaxation for Stressed Companies

1. Regulation 164A is the latest insertion in the ICDR (Issue of Capital and Disclosure Requirements) Regulation which allows the Stressed Companies to make preferential allotment at a 2 week average of the weekly high and low of the volume-weighted average prices. And this shall be approved by a majority resolution of minority shareholders. And any allotment according to the new regulation shall have a lock-in period of 3 years. And the proceeds from such issues shall now be utilised for the repayment of loans and to ensure that a monitoring agency has to be appointed. 

• Relaxations for other Listed Companies

Regulation 163B has also been inserted in the ICDR regulations which allow the companies to go for Optional Pricing Mechanism in case of preferential allotment till December 2020. 

These relaxations can benefit the listed entities to resolve their stressed assets even in this ongoing pandemic. Thus, the relaxations from all the Financial Regulators will act as a ray of hope in this pandemic.