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SEBI in tango with PSBs to reduce NPAs

The Securities and Exchange Board of India (SEBI) had decided to relax norms for investors who are acquiring assets of companies going through bankruptcy proceedings. The move is in tango with government and PSBs attempts to resolve the menace of Non-Performing Assets (NPAs) in the country.

As part of the decision,

• The SEBI exempted those who bought stakes of bankrupt company from banks and other lenders, from issuing open offers.

• Open offer is a takeover code defined by SEBI. When a listed company acquires up to 15 % stake in another listed company, the acquiring company must make an offer of buying additional 20% stake from the existing shareholders. The offer will be open for a month.

• Open offer is aimed at giving the current shareholders an opportunity to exit the company.

• A three-year lock-in was included before the new investors can issue an open offer. This relaxation has to be approved by a special resolution.

• Since there is a possibility of stakes changing hands in such transactions, restriction on open offer gives a sigh of relief for both lenders and acquirers.

• The capital market regulator has also decided to exempt acquisitions that took place after the National Company Law Tribunal s (NCLT) approval of resolution plans under the Insolvency and Bankruptcy Code 2016.

In an unrelated decision, SEBI has decided to levy a fee of $1000 on those who subscribe for offshore derivative instrument (ODI) – these instruments are used outside India to invest in shares listed in stock markets present in India. This regulatory fee will be collected by the registered FPI (Foreign Portfolio Investor) which issues ODIs.

ODIs are also known as Participatory Notes.

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