Market regulator, Securities and Exchange Board of India (SEBI) has proposed to relax funding norms pertaining to companies with stressed assets in a bid to help them infuse some funds and combat bankruptcy. The regulator proposed the idea in its consultation paper, and sought after public comments by May 13.
The SEBI relaxed the funding norms by easing the pricing guidelines for preferential issues. A preferential issue is a primary market issuance of shares by listed companies to select groups of institutions (or qualified institutional buyers). Till date, the financial investments for such issues were based on the weighted average price of the last six months or the two weeks whichever was “higher”.
However, these guidelines were perceived to be difficult in the wake of global rout experienced by listed companies made critical by Coronavirus pandemic. This is because financial investors today wouldn’t plan of investing in the listed company at “a six months weighted average price”, when the asset prices have dropped significantly in the last few months. Indian benchmark index, amid unexplainable uncertainty, have seen 30 percent drop since the start of the calendar year 2020.