The Securities Exchange Board of India (“SEBI”) in its efforts to help listed companies during these tough times of the pandemic has notified temporary relaxations in order to fast track further public offer via its circular dated June 9th 2020 ( “Circular”) .
The Circular permits the listed companies which intend to raise funds by way of further issue of shares in expediting the further public offer (“FPO”) process by cutting down on the compliance requirements thus completing the FPO in a significantly shorter span.
The Circular is applicable upon FPOs which are open for subscription on or before March 31st, 2021 and provides the following relaxations:
a. Eligibility: The Circular has relaxed the threshold of average market capitalism of a company’s public shareholding from INR 1000 Crores to INR 500 Crores. Thus, companies with a holding of less paid-up capital whose market capitalization would be naturally less now may consider FPO by this fast track route in order to fund themselves.
b. Relaxation to companies with pending show cause notices: Now companies against whom show cause notice had been issued by SEBI may also raise funds by this route provided requisite disclosure in the offer document pertaining to such issue of show cause notice has been made.
c. Audit report qualifications: The Circular has done away with the eligibility criterion where companies were held ineligible to undertake fast track FPO because the impact of its quantifiable audit qualifications, included in the audit report covering audited financial statements disclosed in the offer document, exceeded 5% of the net profit or loss after tax of the issuer provided such qualifications and their impacts are properly disclosed in the offer letter.
d. Settlement of violation of securities law: Prior to the Circular, companies where the promoters or directors had settled any alleged violation of securities law through consent or settlement mechanism with SEBI in past three years were not eligible for fast rack FPO.
During these tough times of pandemic where supply chains are disrupted ultimately effecting the source of fund and liquidity to at least keep the company afloat, fast track FPO could be a great option as other options such as rights issue, qualified institutional placements will take back seat due to various reasons. Thus, these relaxations are a welcome change and a striking method of fundraising.