The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 were recently amended by virtue of SEBI (Issue of Capital and Disclosure Requirements) (Third Amendment) Regulations, 2020 dated July 01, 2020. This amendment introduced Regulation 164B which, inter alia, provides for “Optional Pricing in Preferential Issue”, for preferential issues [made between July 01, 2020 and December 31, 2020].

SEBI, while approving this amendment, during its meeting dated June 25, 2020, noted that the pandemic has posed serious challenges for raising capital from the securities market. Various stakeholders had sought that SEBI temporarily liberalize regulations relating to raising of capital from the securities market. Thus, this amendment is in line with various other relaxations advanced by SEBI in light of the pandemic.

Regulation 164(1) provides that for frequently traded shares pricing would be the higher of the average weekly high and low of the volume-weighted average price (“VWAP”) during either (i) 26 weeks or (ii) 2 weeks preceding the relevant date. 26 weeks is a wide time frame which would, at a time like this, result in high variance of the price (which would be much higher at the beginning of the 26 weeks period) as compared to the price at the time when funds are planned to be raised.

Regulation 164B provides that in case of frequently traded shares, the price of the equity shares to be allotted pursuant to the preferential issue shall be determined either by regulation 164(1), or by regulation 164B, at the choice of the issuer. It thus retains the extant pricing norm under Regulation 164(1) and provides a choice to the issuer to opt for pricing norms either under 164B or 164(1).

Regulation 164B provides that the pricing of equity shares, to be allotted pursuant through preferential issue shall be not less than the higher of ‘the average of the weekly high and low of the VWAP of the related equity shares quoted on a recognized stock exchange during’ either twelve weeks or two weeks preceding the relevant date.

Further, Regulation 164B provides that specified securities allotted on a preferential basis using this pricing method shall be locked-in for a period of three years. Finally, it provides that all allotments arising out of the same shareholders’ approval shall follow the same pricing method.

Frequently Traded Shares, ICDR

Regulation 164(5) defines ‘frequently traded shares’, to mean the shares of the issuer, in which the traded turnover on any recognized stock exchange during the twelve calendar months preceding the relevant date, is at least ten per cent of the total number of shares of such class of shares of the issuer: Provided that where the share capital of a particular class of shares of the issuer is not identical throughout such period, the weighted average number of total shares of such class of the issuer shall represent the total number of shares.

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