SEBI Relaxations on Public Offers through the Fast Track Route amidst COVID-19 Pandemic

Due to the outbreak of the novel Coronavirus throughout the country, business activities have come to a standstill and several disruptions have caused a lot of havoc in the economy in general.

Due to the outbreak of the novel Coronavirus throughout the country, business activities have come to a standstill and several disruptions have caused a lot of havoc in the economy in general. Considering this situation, the Securities and Exchange Board of India (SEBI) has introduced certain temporary relaxations in the eligibility conditions for further public offers through the fast track route. This has been done on a temporary basis to aid the process of issuing offers in an easy and hassle free manner in order to remove the impediments to economic growth.
 
Introduction
 
The Securities and Exchange Board of India (SEBI) had previously brought about certain temporary relaxations with regards to the eligibility conditions for fast track rights issue. In continuation of the same, SEBI has on 9 June 2020, introduced similar relaxations for eligibility conditions for further public offers (FPOs) through the fast track route provided under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations). Primarily, in the wake of the developments relating to the Covid-19 pandemic, SEBI vide Circular number SEBI/HO/CFD/CIR/CFD/DIL/67/2020 dated April 21, 2020 has introduced certain special and temporary relaxations with respect to the eligibility conditions relating to the Fast Track Process of the Rights Issue.

The relaxations introduced are only applicable to FPOs and do not extend to issuance of warrants, however. This has been brought about with a view to encourage the issue of public offers (FPOs) without any hassles due to the disruptions caused by the Covid-19 pandemic and hence these relaxations are on a temporary basis only.
 
The Relaxations introduced

The issuers are permitted to carry out an FPO through the fast track route if the eligibility conditions specified under the ICDR Regulations are met.  SEBI has introduced the following temporary relaxations in the eligibility conditions for fast track process for FPOs which open on or before 31 March 2021. The relaxations introduced have been enumerated below:-
 
  1. Market Capitalisation- Previously, the average e-market capitalisation of the public shareholding for the issuer had been atleast Rs. 1,000 crore for a public issue. However, the average market capitalisation, post relaxations of the public shareholding for the issues is now Rs. 500 crores.
  2. Legal Proceedings- Prior to the relaxations, it was necessary to ensure that no show cause notices were issued and that no prosecution proceedings are initiated against SEBI or are pending against the issuers, it promoters and whole time directors. However, now, any show cause notice which has been issued by SEBI, under the adjudication proceedings have now been excluded from this eligibility criterion.
 
  1. The violation of Securities Laws- Earlier the issuer, promoter, the promoter group or the directors of the issuer had not settled any alleged violations of the securities laws via the consent or the settlement mechanisms within SEBI’s provisions in the previous three hyears immediately preceding the reference date, However, now, where any such violations are settled, then the relevant entity has fulfilled the terms of settlement or adhered to the directions of the said settlement order via the consent or the settlement mechanisms provided under SEBI.
  2. Audit Qualifications- Previously, the impact of the audit qualifications upon the audited accounts of the issuer for the financial years for which such accounts are disclosed in the letter of offer, did not exceed five per cent of the net profits or the loss after the taxation of the issuer for the respective years. Now, however, the impact of the audit qualifications upon the audited accounts of the issuer must be disclosed and the accounts must be accordingly restated. Any qualifications for which the impact is not possible to be ascertained must be appropriately disclosed within the offer documents,
 
The relaxations which have been provided for above, have been introduced by SEBI with the intention of facilitating the process of raising of funds through FPOs by offering a greater degree of flexibility. However, the FPOs are largely market-driven and are also subject to a much more detailed review by the SEBI in comparison to a rights issue and a qualified institutions placement.  FPOs are also subject to a minimum promoters' contribution and lock-in restrictions, which have still not been relaxed by the SEBI despite the current economic crisis.  

Accordingly, the listed entities may consider rights issues and qualified institutions placements as a preferred alternative to FPOs in order to ensure that raising of funds during this pandemic is not hurdled in any manner.
 
Conclusion
 
The primary purpose with which SEBI had been incorporate was to function as the primary watchdog for all the capital market participants meanwhile securing its primary goal of ensuring that an environment is provided within the nation for the smooth functioning of all financial markets and market enthusiasts. The goal was to secure and facilitate the efficient and smooth working of the securities market. In order to ensure this and make this happen, it makes sure that the three main participants of the financial market are taken care of, i.e. issuers of securities, investor, and financial intermediaries.
 
Due to the current coronavirus outbreak and the subsequent closure of several businesses, it became the duty of SEBI to bring about and modify certain rules pertaining to issuing of securities in particular. It achieved this by the introduction of relaxations for public offers through the fast track procedures. Not only does this provide some relief for FPOs but it also ensures that a complete economic meltdown is still far from occurring in the market.