After the government and the Reserve Bank of India, it is the turn of the capital market regulator Securities and Exchange Board of India (Sebi) to tighten the screws on wilful defaulters.
In a discussion paper issued today, Sebi has proposed a ban on public issue of equity, debt and non-convertible redeemable preference shares by entities listed as ‘wilful defaulters’ by the central bank.
Sebi has also proposed restrictions on making open offers by such entities.
“…Issuer categorized as ‘wilful defaulter’ should not be allowed to take control over other listed entity in accordance with SEBI (SAST) Regulations, 2011,” Sebi said in the discussion paper.
The market regulator, however, has allowed secondary market access to wilful defaulters.
“Existing listed companies, its promoter, group company, director of the issuer categorized as ‘wilful defaulter’ may make a rights issue or private placement to qualified institutional buyers, with full disclosures in the offer document,” it has said.
An entity is tagged a wilful defaulter if it defaults despite having the ability to pay or uses the loan for purposes other than specified.
Further, wilful defaulters will also be allowed to launch a counter bid in an event of a hostile takeover.
The move to allow wilful defaulters access to rights offering or qualified institutional placements (QIPs) is to ensure such entities are not choked of funding.
“Restriction of access to capital market by way of rights issue may negatively impact the operations of the listed company thereby negatively impacting its share price. Such a measure may not be in the interest of the shareholders of the listed company. Theoretically, the shareholders should infuse funds if the company is in trouble. Shutting down finance even from own shareholders appears to be unreasonable,” the market regulator said in the discussion paper.
Sebi has invited feedback and comments till January 23 on the discussion paper floated today.