SEBI Revised Norms for IPO Funds and Winding Up MF Schemes

No mutual fund (MF) in India will be able to wind up any of its schemes unless the unitholders give their consent through a voting process, market regulator SEBI said.

This comes after more than $4 billion worth of assets of nearly three lakh retail investors remained stuck with Franklin Templeton MF for over a year as it decided to close its six open-ended debt schemes in April 2020 without the unit holders’ consent.

SEBI put this to rest by announcing that MF trustees will have to obtain consent for winding-up by a simple majority of the unitholders present and voting on the basis of one vote per unit and publish the voting results within 45 days of the publication of notice of circumstances leading to the winding up.

Changes in Listing Norms

In case the trustees fail to obtain consent, the watchdog said the scheme should open for business activity from the second business day after the publication of the results of the voting. A number of mutual funds have been waiting for these norms to be finalised for winding up specific schemes. Among other key decisions, SEBI has imposed a cap on the number of shares that the pre-IPO investors can sell in an issue. It has also imposed restrictions on the quantum of issue proceeds a company can use for unidentified inorganic growth, and increased the lock-in period for shares subscribed by anchor investors.

According to Yash Ashar, Partner & Head, Capital Markets for law firm Cyril Amarchand Mangaldas, the new IPO rules could make it difficult for companies and investors impacting the plans of issuers waiting to list.

“Certain changes SEBI made to the IPO issue structure could lead to inability to raise money for future unidentifiable acquisitions and impact capital raising plans of some unicorns, particularly, where such companies may not have any other use of capital and where existing shareholders are not keen to sell. Flexibility to use funds is a hallmark of those listing their equity shares on international stock exchanges and investors vote with their feet when they are not happy with use of such funds, including any new acquisition which they don’t like,” Ashar said. The lock-in for anchor investors has been extended to 90 days from the date of allotment of IPO shares from the current 30 days. The lock-in for the preferential issue has been halved for both promoters and non-promoters.

Preferential Issue Rules

SEBI also tweaked the rules around preferential issues. It said that a valuation report will be needed for change in control and where 5 per cent of post-issue fully diluted share capital is allotted to one entity. In the event of a change of control in a company, independent directors will have to provide reasoned recommendations and vote details. This comes after the recent deal between PNB Housing Finance and Carlyle group was called off after concerns were raised by the regulator on the valuation method.

Other Decisions

SEBI has cut down on the time period for filing of settlement applications by entities to 60 days from the date of receiving show-cause notice. The time period for submission of revised settlement terms form, after the Internal Committee (IC), will be rationalised to 15 days.

SEBI also specified rules for the appointment and reappointment of directors who fail to get elected once. This will be from the date of the IC meeting. Appointment or reappointment of any person as a director, including as whole-time director or managing director or manager, after they have failed to get elected, can now happen only with the approval of shareholders, SEBI said.